Should you review your insurance after home purchase?

Dilshad Billimoria Financial plans and the suggested course of action are based on the facts pertaining to you. When a financial advisor hands over a financial plan to you and suggests buying an insurance cover, the value of that insurance cover is based on factors such as your current income, expenses, goals, assets, liabilities and commitments. But circumstances change over time. New loans, increased salary, higher children education costs, higher expenses, are all variable in nature and therefore, evaluating one's insurance- is important. Let us understand this with an example. When Manish was 18 years old, his parents had purchased an insurance plan for him for Rs 10,00,000, more as a tax saving mechanism. He probably was not even aware of it or the reason for this cover. Now Manish is 30 years old, getting married, and planning to purchase a new home for self and his wife. His wife is a home maker. 

It is prudent to buy an insurance that at least covers the home mortgage amount. Since Manish has just started his career, the accumulated savings for down payment may not be more than 15% of the value of the property, and hence he would need to take a loan for the remaining 85%. Assuming the cost of the house is Rs 80,00,000, the loan amount taken would be Rs 68,00,000(@85% of value of house) Since Manish is the sole income earner for now, he should take a pure term insurance cover plan for the remaining Rs 58,00,000, after considering the existing insurance cover of Rs 10,00,000. This is done to ensure that in case of an unfortunate eventuality of his death, his wife is not left with a home loan burden and no income to pay that loan. She would not be faced with the financial trauma of selling the home to repay loan to the bank. The proceeds from the insurance cover would be used to repay the mortgage to the bank and she would continue to stay in the home. Again, in his absence how would she continue to maintain the same lifestyle and manage the household expenses? She is a home maker and has no source of income to fund the living expenses. 

Therefore, while Manish is re- evaluating the life cover needed at the time of purchasing the new home to cover his mortgage value, he should also consider protecting his family to maintain the same standard of living, should something happen to him to ensure cash flow of the household is not affected. He must therefore, consider a pure term insurance plan that would pay a lump sum to his wife, should anything happen to him, so that she can deposit the amount in the bank and fund the living expenses year on year till her life. For that, the present value of income that is used for the family discounted by inflation for the remaining tenure will determine the life insurance needed by the life assured. Let us say Manish’s gross total income is Rs 5,00,000 per annum. His personal expenses are Rs 1,00,000. His personal income tax payable is Rs 23690. Premium paid by him for his personal life insurance policy is Rs 20,000. Amount available for his family is Rs 3,56,310. Lets round this to Rs 3,57,000 per annum. This is the amount his family would need year on year in his absence to maintain the same lifestyle until retirement. The human life value for Manish is calculating the present value of all future incomes that he would contribute to his family for the next 30 years (60-30), which is Rs 40,19,028 assuming a discount or inflation rate of 8% per annum. This amount does not include the assumed increase in income that Manish would get through his career. Therefore, if Manish dies at age 31 years, his family will receive the above amount that will sustain their lifestyle needs in his absence for their remaining life. If Mr and Mrs Manish are planning to have children, the insurance cover would increase with added dependents and responsibilities of education costs. Another important cover one must buy is personal accident insurance cover to protect oneself from accidental dismemberment.

 This means loss of limbs or a part of your body that would not allow you to carry on work with the same level of income. With reduced income, how would one service the mortgage payments? Therefore, there are policies that pay a part of the mortgage to the bank, in case of partial/ total dismemberment. Homeowners need to purchase home insurance to protect their homes and personal property. Those who rent, need insurance to protect their furniture and other personal property. Everyone needs protection against liability for accidents that injure other people or damage their property. The higher the coverage, the better, so that you are insulated or insured when a disaster strikes.

Read more at: http://www.moneycontrol.com/news/insurance/should-you-review-your-insurance-after-home-purchase-_4160221.html?utm_source=ref_article

Use surplus funds to repay home loan

All these costs will be revised based on inflation.

Where are they today?

Cash flow: The gross annual inflow from various sources is Rs 20.29 lakh against an outflow of Rs. 10.38 lakh. The outflow includes routine household expenses, taxes, EMI on home loan, insurance premium and regular investments in EPF. EMI consumes about 6% of annual inflow.

Net worth: The market value of all assets owned by the couple is worth Rs. 1.56 crore. Out of this, Rs 1.09 Crore is for personal consumption in the form of house, jewellery and car. They have an outstanding mortgage of Rs 2.20 lakh.

Contingency fund: Against the mandatory monthly expenses of Rs 53,944, the balance in savings bank, bank FD, liquid funds and cash together amounts to Rs 26 lakh, which is equivalent to 48 months' reserve.

Health & life insurance: Life insurance cover for Rahul is Rs 8 lakh and that of Pallavi is Rs 10 lakh. This is mainly by way of investment-oriented policies. Rahul's employer has provided health cover in form of floater plan to entire family worth Rs 7 lakh.

Savings & investment:

Invested assets comprise equity mutual funds worth Rs 1.27 lakh, direct equity shares worth Rs 55,630, fixed deposits worth Rs 2 lakh, Rs 1.12 lakh balance in employee provident fund and life insurance worth Rs 18 lakh. Balance in savings bank account is Rs 25 lakh and bank FD is Rs 1 lakh.

Fiscal analysis

Family is saving a substantial part of the income. A huge surplus is lying in savings bank account but this is temporary. Borrowing is well within their limits. Both health and life cover needs enhancement.

The way ahead

Contingency fund: They should keep about Rs 1.6 lakh for contingencies. Out of this, Rs 25,000 in form of cash at home is recommended considering there are elderly parents at home. Rest of the amount can be parked in a savings bank account linked to an FD.

Any balance over and above the contingency fund should be utilized to pay back outstanding home loan. After paying back home loan, surplus funds available should be deployed according to suggestions given below.

Health & life cover: The couple should enhance health cover to Rs 5 lakh each for Rahul and Pallavi and Rs 3 lakh for their daughter. If possible, they should also obtain a health cover for parents. Rahul's live insurance should be enhanced to Rs 1.5 crore and Pallavi's Rs 65 lakh, both in the form of term plans.

Planning for financial goals

Home buying: Purchasing a bigger house is possible. First, the surplus funds in the savings bank account after repaying the home loan should be invested in a mutual fund scheme having about 75% in equity and rest in debt. Second, the couple should start SIP of Rs 15,000 in a similar mutual fund scheme. This is suggested as they want to purchase bigger house seven years later. At the time of purchase, they can liquidate the existing home and fund the shortfall with a home loan.

Daughter's education & marriage: They should invest Rs 25,000 every month in a large-cap equity fund, international equity fund and gold fund and increase the allocation by 10% every year. The corpus thus created should be utilized to fund education and marriage-related expenses.

Retirement planning: They should continue contributing to EPF and PPF. An SIP in a mid/small-cap equity fund should be initiated.

Travel & Car: The couple should save systematically every year, after providing for the necessities. Whenever funds are available, they can go on a vacation and buy a luxury car.

Planner's eye

There is no doubt the family will achieve all their goals. There are three strong reasons for it: Since the couple's lifestyle is simple; they save a substantial portion of income; it is a double-income family; and they are living with parents. 
http://timesofindia.indiatimes.com/business/india-business/Use-surplus-funds-to-repay-home-loan/articleshow/46560956.cms

Fed Insured Home Loan

The common dream of every resident of Pueblo is to own a home. In order to buy the first residence a person can apply for a home mortgage loan. Many types of home loans are offered for the first time buyers. This article gives a person an overview of the different types of government insured home loans.
Home loan in Pueblo, Co is offered by the lenders on the basis of some factors like credit history, percentage of down payment, type of interest, mortgage term, and so on. Generally, for conventional mortgage, a person needs to have a good credit history. He also has to make a minimum down payment of 20 percent. However, a person who has a low credit score and cannot afford to make 20% down payment, may take advantage of the mortgage offered by the government. The different types of mortgages that a first time home buyer can avail are as follows-
* FHA mortgages: The Federal Housing Authority does not directly offer the loan, but gives guarantee of repayment to the lenders, in case a person fails to repay the loan. As the risks are less the lenders keep lower requirement criteria for loan approval. The loan terms generally range from 10 to 30 years. One can either opt for a fixed rate or an adjustable-rate mortgage.
* VA mortgages: Only a military veteran can take advantage of this loan. He does not have to put any down payment and the interest rate offered to him is generally 1% less than the current market price. The loan term ranges from 10 to 30 years. The borrower has to pay a 1% funding fee during the closing of the loan process. The insurance and property taxes are factored into an escrow account, so that the borrower can make the monthly payments as per his affordability.
* FHA HUD mortgages: A person can take this type of loan if he wants to buy an FHA foreclosure home. This program offers him to put a minimum down payment, which can be as low as $100. He also needs to pay a small amount toward repair escrow account, if the home needs some renovation and closing cost assistance up to $2,500. The loan term ranges from 10 to 30 years. It is a fixed rate mortgage.
If you want to take advantage of government insured home loan - Pueblo (Co) log onto http://www.integritymtg.com. Integrity Mortgage & Financial Inc. is a well known mortgage firm in Pueblo. They work with the top lenders. They are an approved FHA and VA lending company. As per your repayment affordability they will help you choose the best mortgage option. Call them up now.

Home loans Pueblo, CO - Integrity Mortgage & Financial Inc. is a well known mortgage firm in Pueblo. As per your repayment affordability they will help you choose the best mortgage option.

Article Source: http://EzineArticles.com/5758946

Home Loan Insurance

Home loan insurance is a good way for people to deal with the different problems encountered in paying for their home loans since they are able to get the necessary support and reinforcement with regards to the different problems encountered. Basically, the payments for home loans are very complicated since the financial status of a person could be changed in a moment's notice. Many unexpected situations such as the one found in the recession have resulted in many unpaid debts with banks and government based lending institutions. The flaws of the initial problems have been solved since the home loan insurance allows the most flexible payment terms even after the person involved is incapable of fulfilling all the requirements found in the contract. This is because the institution would readjust the extension to appoint that would fit the monthly income or payment capabilities of the people involved. Imagine paying as small as half of the original payment except that the payment terms would be longer. Considering the implications of the deal, it would save many home owners from being evicted from their own homes and houses. That is why many banks have started to imitate how the home loan insurance works and have allowed their clients and customers to continue payment at the best way they can achieve without repossession of their homes. This is the reason why home loan insurance has been hailed as the solution to the homelessness problems faced by millions of Americans in the country today. The simplicity of the application would allow easy processing and payments terms Article Source: http://EzineArticles.com/2849069

Some Pros and Cons of Securing a FHA Insured Home Loan

If you are a family that has a low to moderate income and are looking for a mortgage loan going through the Federal Housing Administration is a great option. This is a government backed program that helps families get into a new home of their own at a lower initial cost. It is important to recognize that the FHA does not give out mortgage loans but instead insures a mortgage loan for you. By doing this it can make the mortgage loan cheaper by thousands of dollars. By insuring the loan it also encourages the bank to give loans to people with little to no down payment. If you qualify a FHA insured home loan is the way to go. When using this program you are able to buy a new or used home. You can buy anything from a one to a four family home depending on what you are looking for. It is necessary that you reside in the home for the extent of the loan. There are many benefits that you receive if you get your mortgage through the FHA program. One is that it can help you to obtain a lower interest rate loan rather the a higher interest rate sub-prime loan. Getting a lower interest rate on your mortgage can save you thousands of dollars throughout the length of the loan. It is truly amazing how much just a percentage point can make. Another benefit is that some people do not need to have a down payment in order to obtain a mortgage loan. If you have to have a down payment then it is substantially less that in a non FHA insured loan. Instead of the regular rate of ten percent you may only need to have three percent considerably lowering your initial costs. You will also benefit from the FHA limiting the fees that you can be charged. One example of this is that the fee for the loan origination cannot go over one percent of the mortgage. There are many loan companies that can try to rake you over the coals on these types of fees. Be careful. There are a few things that come with FHA loans that are not as nice. This makes these loans a poor choice for some borrowers. FHA sets limits on the amount that you can make for your loan. This is to make sure that the program is not being abused and is used only by families in the approved income bracket. Some people may also find it to be a disadvantage that you must reside in the home for the full length of the loan. If you are looking to buy a home as a vacation spot or looking at it as an investment then this is not the program for you. The reason for this rule is that they are trying to get families into their own homes. When getting your mortgage loan through FHA you need to use an approved financial institution. The good news is that there are many institutions that are approved. Before rushing out to the first bank that will work with you, it is important that you still research which one will give you the best possible deal. Make sure though when you are researching that you have a copy of your current credit report. Do not. I repeat Do Not let the banks and financial institutions run your credit report when you are just shopping around. Every time someone checks it there is a ding on your points score. So Shop wisely. For more information that will steer you in the right direction concerning your Mortgage Refinance [http://www.mortgagerefinance.the-goods-work.com/ideas/index.php] or simply just obtaining a New Mortgage [http://www.mortgagerefinance.the-goods-work.com/index.php] check out my site. Article Source: http://EzineArticles.com/1719315

Home loan: Checklist for borrowers

A house is generally financed with a home loan, while a certain portion is financed out of one's own resources. It would be advisable for a borrower to consider some factors before taking a final decision on whom to borrow from and how much to borrow. As a preliminary step, you should prepare a checklist covering specific areas. While discussing with a prospective lender the checklist will come in handy to make a comparison and take a final decision .

Some points to be included in your checklist:

Purposes the loan amount is available for - purchase of plot, construction or for both How and when the disbursement will take place Documents required to sanction the loan Eligibility to be a co-applicant Time taken for sanction and disbursement of loan. Generally, a bank takes 7-10 working days Maximum loan the bank is ready to disburse When EMIs start Method of implementing interest rate change - reduction/increase in tenure or EMI Method of calculating interest rate Guarantor requirement Phases of the loan disbursement Legal and verification fees payable by the borrower Rate of interest and effective rate of interest.

The effective interest rate should be taken into account for comparison Commitment charges payable, if any Processing charges payable by the borrower Procedure for switching over from floating to fixed rate or vice versa. The conditions and corresponding charges payable In case of purchase of land and construction loan, will the bank sanction separate loans or a composite loan Monthly EMI amount Mode of payment of EMIs direct transfer from bank account, postdated cheques or debit from salary Offer of a free or concessional insurance policy for the loan, house or against personal accident Impact of part prepayment on EMI - reduction of EMI amount or reduced number of EMIs These factors constitute a preliminary checklist only and are by no means exhaustive. You may add any number of additional points. This will help in comparing and negotiating with banks for a good deal.
http://economictimes.indiatimes.com/features/financial-times/Home-loan-Checklist-for-borrowers/articleshow/5936076.cms

Select home loan provider with care

Imagine a situation where you have identified a house you like to buy. You walk into a bank, provide some identification and the front-office executive offers you a special discounted rate based on your credit score thrown up by the bank’s computer. Not just that, the bank also feeds in details of the property that you wish to buy and tells you whether the seller has a loan outstanding against it or not.

A combination of events are taking place that will propel growth in retail loans to the level of developed markets by reducing bad loans and improved accuracy in pricing. At one end, a host of new credit information companies (CICs) are coming up to provide banks with a comprehensive database of borrowers’ track record.

At the other end, the government is promoting institutions like the Central Mortgage Registry, which will ensure that no two borrowers in the country will be able to raise institutional loans against the same asset. Helping link the borrowers to their credit histories will be the Unique Identification Authority of India (UIDAI) with its social security-like number, which has received a government support of Rs 1,900 crore in the recent Budget.
Last week, the Reserve Bank of India (RBI) gave operating licence to Experian Credit Information Company, which plans to roll out its products over the next few months. Experian is the first credit information company to receive operating licence after the Credit Information Companies (Regulation) Act was passed in May 2005.

Earlier in 2009 the central bank had given in-principle approvals to two companies — Equifax Credit Information Services and High Mark Credit Information Services. Both are expected to get full-fledged operational licences before the end of FY10.

The competition in this nascent sector is set to hot up as the new entrants enter the fray till now monopolised by Credit Information Bureau of India (Cibil), which came into existence bore the CIC Act was passed.

CICs maintain a centralised database on borrowers and rate their creditworthiness based on the information on their existing liabilities and past repayment record. The scoring is based on the analysis of the information provided by banks, which have already extended credit facilities to the borrowers. If a borrower goes to multiple lenders, then new lenders will benefit from these scores while making a lending decision and pricing the loan appropriately.

The success of the model is based on information sharing between members — NBFCs and banks. While Cibil enjoys a patronage of 200 credit grantors as members and has a database of about 1.5 million credit accounts, Experian has already obtained commitments from 39 lenders, even before starting full operations. Though the CIC Act has similar provisions for telecom and insurance companies, these are yet to take off commercially.

Each player has his own strategy to tackle competition. Cibil, which set shop in 2004, is aware of the challenges that it will face as more companies enter the market. “We welcome competition as it would eventually boost credit penetration in the country and bring financial discipline among individuals. We will continue to make investments in information technology infrastructure and offer innovative risk management products to the banking industry,” says Arun Thukral, managing director of Cibil.

"We have to differentiate our offering from that of Cibil. We understand the market and products better as we are twice the size of our nearest competitor globally,” says Phil Nolan, managing director of Experian Credit Information Company of India. Experian plans to outsource all its data processing work to its data centre in the UK, which it says is cost-effective. This UK-headquartered, $3.9-billion CIC has presence in 69 countries.

The US-headquartered Equifax, which too has a sizeable global presence, is expected to set up shop soon here. “Globally, Equifax has over 800 different products in its bouquet. Over the medium term, we plan to introduce some of the most relevant products in the Indian market,” says Equifax India head Samir Bhatia.

“Our foremost priority will be to offer our clients products such as credit information reports, scores and analytics services. We will also focus on identity and collection management areas. We are also investing to bring in high-end technology to enable our customers superior and easy access,” he adds.

The reason why none of the companies are particularly perturbed by competition is the size of the market. As of now, data is available only for 15 lakh borrowal accounts, that too mainly from large cities. But CICs are talking of covering Tier-I and Tier-II cities. Some, like Experian, are also in talks with micro-finance companies in order to enter the rural market.

As for banks, such reports will help them arrive at a more realistic lending decision which, in turn, will help them in reducing their non-performing assets (NPAs). However, this comfort comes with a cost. Every report obtained from a CIC attracts a fee. For lenders to refer to more than one credit information agency, it is incumbent upon the agencies to reduce their fees for such credit reports.

According to MD Mallya, chairman and managing director of Bank of Baroda, which holds stake in two credit information companies, “Competition will bring down the cost of accessing such reports. It will help us take quicker decisions based on qualitatively better data.”

Eventually, it will be the accuracy of the credit report, besides pricing, based on the information provided by banks that will hold the key. The competition may force CICs to ensure this. Cross-checking the customer’s data from two different bureaus may put more confidence in the minds of the appraising officials about the true state of affairs of the applicants’ current borrowing record. 
http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/analysis/Select-home-loan-provider-with-care/articleshow/5635276.cms