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

Demystifying insurance policies

MUMBAI: Rajesh Sinha, a 30-year-old marketing professional had five insurance policies where he was paying a premium of Rs 50,000 against each of the policies. With such a huge premium outgo, he was under the impression that he was more than adequately insured.

But little did he realise that his actual insurance need was 10 times his annual salary which was over a crore of rupees. Against this each of his unit-linked policies (Ulip) schemes offered protection for only Rs 2.5 lakh i.e. a total cover of Rs 12.5 lakh.

The proliferation of Ulips has taken away the focus from insurance. Buying insurance needs a staggered approach and one has to review/expand the cover as s/he assumes more responsibilities such as marriage, having children or dependent parents.

HOW TO REVIEW YOUR COVER

Today single-income families are making way for more double-income families. But that doesn’t reduce the financial responsibility for either of the spouses.

“The need for insurance emanates from the various obligations that the breadwinner is expected to fulfil such as children’s education, retirement, health and savings. These change with the changing life stages and are driven by the individual’s specific needs. Thus, each individual should put a rupee value to each need and thereafter conduct a self-risk assessment,” Leena Dhankher Joshi, AV-P, life, accident & health profit centre, Tata AIG Life Insurance.

This may sound very complex, but is quite easy. Assume a complete discontinuation of your income and evaluate the implications of that on your family.

This self-assessment coupled with the current life stage and the responsibilities towards the family. For example, children’s education, marriage, retirement plans and various liabilities such as home loans will help you asses your insurance needs. A ball-park figure is 10-15 times your salary, which should be the size of your insurance cover.

INSURE YOUR HOME LOAN

If you have a large home loan, it’s a wise option to cover the liability. A borrower wouldn’t want to pass on the financial burden to his spouse or dependent parents in case of an unexpected demise or even a disability and hence a job loss. Life insurance companies have designed home loan insurance covers in alliance with banks to cover this risk. However, a simple term plan could be a better back up than these home loan insurance cover, financial advisors say.

“Let us assume a borrower has opted for a home loan of Rs 30 lakh. Now, in case of a term cover, an individual of 35 years can opt for a term cover of Rs 30 lakh and pay an annual premium of around Rs 8,000. If an individual would have opted for home loan insurance, he would have had to pay an upfront amount of Rs 1.52 lakh as an insurance cover on the Rs 30 lakh home loan.

Now, this could prove to be loss to a customer if he prepays the loan within 10 years. Secondly, the insurance amount is calculated on a reducing balance basis. So the value of the cover falls with every passing year,” Suresh Sadagopan a certified financial planner, Ladder 7 Financial Services.
http://economictimes.indiatimes.com/personal-finance/insurance/analysis/Demystifying-insurance-policies/articleshow/5197966.cms

Cut your home loan rate

Stick with one institution for all financial services and you can vault your savings into the fast lane.

Home-loan packages that bundle together a mortgage, credit card and transaction account are a good deal, according to the banking industry researcher Canstar Cannex.

Financial institutions use measurements such as "cross-sell" (how many of the institution's products each customer uses) and "share of wallet" (how much of the customer's banking business goes to the institution) to determine the effectiveness of their retail banking operations.

Customers with lots of products generate more revenue for the bank and they are less likely to go through the bother of moving their banking business. Financial institutions are prepared to offer a discount on the standard home loan if the borrower will take the extra products with it.

Canstar Cannex says this is a good deal. The package discount on a variable home-loan rate is usually between 0.5 of a percentage point and 0.7 of a point (50 basis points to 70 basis points).

It is less common to find a discount on a fixed-rate loan and those that are available are smaller than discounts on variable-rate loans. Canstar found that of the 37 home-loan packages it reviewed, eight offered a fixed-rate discount and the range was between 10 basis points and 45 basis points.

The big trade-off is that package loans come with a large annual fee. The fee can be as much as $395 a year (charged by St George, National Australia Bank, Westpac and BankSA) and as little as $25 (charged by Suncorp on its My Home Package).

Taking the example of a $350,000 loan, a consumer with a typical variable-rate loan at 5.78 per cent (the average of the big four) would pay $20,230 of interest each year, a standard $100 mortgage servicing fee, a $50 credit card fee and $60 in transaction account fees. The total cost is $20,440.

A consumer who chooses the package at a discount rate of 5.08 per cent pays $17,780 of interest each year plus a $350 average package fee. The total cost is $18,130 and the saving over the stand-alone option is $2310.

Even borrowers who might be considering a cheaper basic home loan would save some money using a package, according to Canstar's calculations.

Other benefits cannot be measured in dollar savings, such as the convenience of managing your banking through one financial institution.

Canstar says there is quite a bit of competition in the package banking market. Some institutions waive the annual fee on credit card reward programs. Some discount premiums on home and contents and other general insurance products. Others discount financial-planning fees.

http://www.smh.com.au/news/business/money/property/cut-your-home-loan-rate/2009/09/02/1251570744215.html

Home Loan Rate - How Do Closing Costs Affect Home Mortgage Rates?

First time home buyers or borrowers are often rather unpleasantly surprised at the time of closing or just prior when the good faith estimate of closing costs is received. These closing costs can sometime add a significant cost to the dollar amount that the borrower is expected to provide to clear the escrow account at the time of closing or shortly thereafter. The home loan rate is not directly tied to each of the closing costs, but indirectly, you will pay the closing costs. You should make sure you realize and understand each of these costs and how they impact your total cost of the loan.

Definitions

'Closing costs' is just one of the definitions that you should understand when considering obtaining a home loan. The 'home loan rate' is another. Closing costs are expenses related to the obtaining of the loan, such as document preparation, title search, appraisals, and various other expenses. These costs are typically listed as part of the closing process on the loan. The closing of the mortgage at the title company or with the loan officer will spell out each of these costs and who is responsible for payment of the cost at closing.

Title search

One of the responsibilities that must be met is a search by a title company of court records to insure that the ownership or title to the home in question is clear. They will be looking at sales and deed records to determine that the sellers actually have the legal authority to sell the property. There is a fee charged by the title company to conduct this search. The clear title means that the title company can guarantee the title is correct and that you will have a clear title to the property in question after closing. The title company actually provides a type of insurance, known as title insurance. The cost of the title insurance is one of the closing costs built into the home mortgage rates.

Origination fees

Another factor in the home loan rate is that of origination fees. These are costs associated with the work the lender or broker does in opening an application file and working to collect and pass on all the necessary documentation required to complete the loan according to the contract. These fees can be sizable or modest, depending upon the broker, but in most cases are negotiable also that fact is not commonly known.

Points

The borrower may be required to pay 'points' as part of the loan fees. There are two types of points that you may be asked to cover. Origination points are the fees you pay your broker or lender to secure the loan while discount points are essentially interest that you prepay in order to manage the best interest rates on your loan. Both types of points are usually paid at the home of closing. Payment of the discount points can significantly lower your home mortgage rates meaning thousands of dollars less in cost over the life of the loan.

http://ezinearticles.com/?Home-Loan-Rate---How-Do-Closing-Costs-Affect-Home-Mortgage-Rates?&id=1389414

Spring clean your finances and save £5,000 in a year

Brits waste £243 billion by not changing to more competitive deals

With bank holidays around the corner, many people will be busily contemplating their next home improvements and how to fund them.

Calculations from moneysupermarket.com show a family with a typical basket of financial products1 could save £5,185.852 over a year if they took time out to review their finances and transfer their existing financial products onto more competitive deals, leaving them with more hard-earned cash to splash on themselves.

Stuart Glendinning, managing director at moneysupermarket.com, said: "A family with a typical financial portfolio could save a staggering £5,185.852 over a year by moving away from uncompetitive products.

Simply by reviewing their existing finances - mortgage, credit card, personal loan, savings, home insurance and motor insurance (amongst other things) and searching for better deals they can make considerable savings.

This would take only moments on moneysupermarket.com's website.

"Many people look to make home improvements over the bank holidays weekends and it can end up a costly exercise.

However, sorting out their finances first means they can make some significant savings which could really boost renovation plans." Examples of the savings that can be made: Mortgage With so many low fixed rate mortgages on the market homeowners can reduce their monthly payments considerably by remortgaging to a better deal, especially if they are languishing on the Standard Variable Rate (SVR).

For example, if they move from the Woolwich SVR rate at 7.39 per cent, paying £1,097.78 a month, to a more competitive lender, such as Yorkshire BS, offering 4.79 per cent on a two year fixed rate, they would only pay £869.36 a month.

A saving of £228.42 a month or £2,401.04 a year.

Personal loan Despite a few recent base rate rises, there are still some good deals to be had on personal loans.

There are still six personal loans on the market at less than 6.5 per cent APR.

Based on taking out £7,000 over five years a typical family could save ?168.60 in interest payments in just one year, if they change their personal loan with Lloyds TSB with a typical APR of 10.9 per cent to the Moneyback Bank loan at 6.4 per cent APR5.

Credit card There are still some very competitive 0 per cent deals on both balance transfers and purchases on the market.

Those who make the effort to choose the best deal to suit their needs will be rewarded.

If a £2,000 debt on a Natwest Classic Card at 16.9 per cent APR is switched to one of the 50 credit cards offering 0 per cent interest on balance transfers for the introductory period, such as the Virgin Credit Card (at 0 per cent until for 13 months and 1.2408 per cent per month thereafter), there would be no interest payments in the first year, making an annual saving of ?305.36 including the balance transfer fee.

Motor and home insurance There are some great savings to be made if people make sure their insurance is up to scratch.

By switching motor insurance provider on a Land Rover Freelander S 3Dr from Endsleigh, paying £31.36 a month, to Esure, paying £24.45 a month, they will save £105.95 a year6.

For a four bedroom detached house in St Albans over £135.32 can be saved a year by switching home and contents insurance from a provider such as Legal and General to Budget7.

Savings Savings that languish in poor paying accounts with the 'Big Five' banks could be a costly waste.

An individual with £10,000 in the Royal Bank of Scotland Instant Access Savings account paying 1.85 per cent AER would receive £185.04 in interest over a year.

However, if they swapped to the Alliance and Leicester Direct Saver account paying 5.8 per cent AER, they would earn £579.86 over the same period - an additional earning of £394.82 over the year.

Utilities Utilities have been the talk of the town of late, but customers should assess the deal they are on and not get scared into price protection deals.

For example, Powergen's price protection deal until 2010 would cost, on an average bill8, £1,029.21.

However by transferring onto British Gas Click Energy 2 deal, for the same energy consumption and you would see £265.24 shaved off the average householder's bill.

Other ways people can mop-up their finances is to review other areas such as their current accounts, overdrafts, travel insurance, store cards and new car finance.

Moving these products onto more competitive deals means someone could save a further £1,408.21.2 All these saving equate to a total saving of £5,185.852 in a year.

Stuart continued: "These savings can be made without changing your lifestyle or spending any less - all it costs is a little time to find the best deals for you and your family.

And if you kept these changes up for a year the savings are over £5,000 - enough to persuade the most reluctant saver to make the effort.".

http://www.insidemoneytalk.com/news/mon/mon131.html

5 costs of buying a home

The conditions seem ripe to become a first-time homeowner.

Real estate prices are tumbling, mortgage rates are at record lows and there are big tax credits on the table. All that might have you scrambling to assess whether you can afford to make the leap into homeownership.

That was the situation for 28-year-old Holly Dewar and her boyfriend last winter.

“We really wanted to get the most for our money, and the market timing seemed right,” said Dewar, who works in public relations. Her boyfriend, 29-year-old Kurt Spring, works in real estate finance, which helped facilitate the purchase.

They closed on a three-bedroom, one-bathroom home just outside Boston for $340,000 in January. But that price didn’t include a host of other of costs, such as $4,000 in closing fees and $700 for a home inspection.

Before considering such details, find out whether the mortgage down payment is a deal breaker; lenders are requiring more money upfront as they tighten standards. For the less-than-ideal borrower, an array of new loan fees could be another hurdle.

So if you think it’s time to stop renting, here are some costs to consider.

Cost 1: Getting ready

Start the process by polishing your credit report. Banks are being more selective about making loans.

The Federal Reserve says a March survey found half of U.S. banks tightened lending standards on prime mortgages in the previous three months, up from 45 percent in February.

“We’re in very uncertain times, and you’re asking for a very big amount of money. The lender is going to be looking very closely at the credit report,” said Jed Smith, a spokesman for the National Association of Realtors in Washington, D.C.

A higher FICO score also gives you greater negotiating power over the terms of the mortgage and, ultimately, the total cost of the loan. A stellar score ranges from 760 to 850, while scores below 640 might mean you have to pay a significantly higher interest rate. You are entitled to a free annual credit report from each of the three major credit bureaus. Getting your FICO score costs $15.95 at www.myFICO.com.

Cost 2: Down payment

More lenders are demanding bigger down payments of 20 percent or more, Smith said.

The upside of making a bigger down payment, of course, is that you’ll owe less money and get better terms on your mortgage. If your down payment is less than 20 percent, however, you generally need to pay for mortgage insurance, which could cost $100 or more a month depending on your loan.

Cost 3: Adding up fees

New fees introduced by Fannie Mae and Freddie Mac in the past year will likely push the price of a mortgage higher for many people. The fees are based on credit profiles, the amount of the loan in relation to property value and the type of home.

As such, they’ll vary greatly depending on your personal situation, but could total as much as 3 percent of the mortgage.

In that case, you’d be paying another $3,000 for a $100,000 loan.

There are also standard closing costs to consider. These are service fees charged by the lender and could cover items such as credit reports, appraisals, documentation and administrative costs. According to Bankrate.com, the national average last year was $3,118 for a $200,000 mortgage.

Lenders are required to itemize all closing fees, so review them carefully. Some of the more standard fees might be negotiable.

Cost 4: Inspections

Your inspection costs will depend on the checks you want and whether your inspector offers comprehensive packages.

The seller might pay for inspections in some cases, but it’s more common for the buyer to foot the bill.

Other inspections might be for lead paint, pests or radon gas. Some of these checks might be required by the lender and included in the closing costs.

Cost 5: Maintenance

A common mistake for many new home buyers is focusing on the monthly mortgage alone. It’s easy to forget all the maintenance costs that come with owning a home.

To start, your utility costs will likely go up significantly. As a renter, you might not even pay for water, heat or electricity. But they could be a big drain if your home is large or you have a pool or other feature that drives up utility bills.

There are bigger maintenance matters to consider as well, such as repainting the house periodically. You’ll also be on the hook for any repairs for your home.

http://www.ajc.com/services/content/printedition/2009/05/17/pfhomebuying0517zh.html

Home Equity Loan Advice for People With Bad Credit

Home equity loans are a type of loan that places a second lien on a property. Thus, these are commonly referred to as second mortgages. There are certain benefits and disadvantages to these loans. For example, it is easier to qualify for a home equity loan with bad credit, and the money can be used for expenses such as home improvement or debt consolidation. Some home buyers use a home equity loan to avoid private mortgage insurance or jumbo loans. The negative aspect is that a second mortgage uses your home as collateral. Non-payment on the loan may possibly initiate a foreclosure.

Here is some advice for people looking for a home equity loan.

1. Avoid Negative Amortization on the First Mortgage

To qualify for the first mortgage, a borrower with bad credit may have chosen a loan program that resulted in negative amortization. On these loans, the monthly interest payment is less than the interest due, and the mortgage balance rises over time.

When a borrower wants to keep their payments low in the beginning, a lender may recommend a negative amortization adjustable rate mortgage. Before a home equity loan is approved, the mortgage lender closely assesses the first mortgage. Many lenders instinctively reject a home equity loan if the first mortgage is a negative amortization.

2. Don't Count on Home Appreciation

Several home equity loans allow homeowners to borrow more than their home's equity. This is dangerous because borrowers place all their confidence in the likelihood of fast home appreciation. Regrettably, home market values can shift unpredictably, wherein some properties may experience a slight decrease in value. As a result, borrowers may owe more than their home's worth, and they are obligated to stay in the home. Selling a property under these circumstances means the homeowner will encounter a considerable loss, and end up owing the mortgage lender a ton of money.

http://ezinearticles.com/search/?q=Insurance+Home+Loan+