For most people a home loan will be the biggest and most important loan they will ever go for in their entire life. It is something that will affect their personal finances for decades. While competition is making banks jump over each other to lend you that much-needed home loan, it is always better on your part to know a few basic things before you sign on the dotted lines.
Hence, it's important to make the right decisions when you approach a bank for a home loan to buy your dream house. Here are some important things to watch out for:
Look carefully and bargain hard
In today's environment there are many banks competing hard in the home loan business. Make sure you use the competition to your benefit. Investigate at least five banks carefully before making your final decision. Remember that a little bit of effort today could save you many thousands of rupees over the next few decades. Imagine how happy you will feel when the same money will come in handy for your child's education. When you do make your final decision make sure you bargain hard. In addition to bargaining on interest rates and processing fees see if you can obtain free extras like property insurance. Finally make sure you read the fine print on the loan agreement and if necessary consult a lawyer to explain some of the details.
Loan eligibility
One of the biggest issues when taking a loan is the size of the loan you are eligible for. Loan eligibility is calculated based on your ability to pay and the cost of the house. There are a number of ways you can increase your loan eligibility. For instance you may choose longer loan tenure in return for higher eligibility. You may request the bank to club the incomes of close relatives like your spouse or parents. Or perhaps you may be able to persuade the bank/s to increase eligibility by showing your track record on a previous loan or your credit card payment history.
Home loans and insurance
Home loans increase the financial risk to the family in case the main earner passes away. They will be forced to bear the burden of repaying the rest of the loan. It's a good idea to increase your life insurance cover to protect your family from the additional risk. It is possible to buy policies where the cover reduces as the outstanding loan goes down. You may also want to buy disability cover to protect against accidents or critical illness.
Documentation
Make sure you get a receipt for any property documents that you keep with the bank. This is important if you switch your loan to another bank and will also prove useful if your bank misplaces any of your documents. Also make sure that your bank provides a detailed statement of account; this will be useful in documenting your repayment record, which will help you while negotiating for future loans.
Fixed and variable rates
With a fixed rate you should check whether the rate is fixed for the entire tenure of the loan or just the first few years. Check whether there are any loopholes that would allow banks to change 'fixed' rates when interest rates in general start moving up. Many banks insert a 'reset clause' in your home loan agreement that allows them to increase interest rates at a given point in time.
With variable rates you should understand whether the variable rate is clearly linked to some specific index. You should also clearly understand how changing interest rates would affect your payments: whether the bank will change EMI or the remaining tenure of your loan.
Friday, August 10, 2007
Friday, August 3, 2007
Will BoJ rate hike hit yen-carry-trade?
In March, there was a huge depreciation in the yen. Around the same time, interest rates in India were also on an uptrend. This prompted companies in India to raise at least USD 5 billion via the external commercial borrowing, or ECB, route.
Reliance Ports, Reliance Utilities and some other group companies raised USD 1.2 billion in March alone. While ADAG entities like Reliance Energy, Reliance Telecom, and Reliance Communications raised USD 640 million. Bharti raised around USD 3 million, JP Associates around USD 250 million, Rural Electrification Corporation USD 200 million, IRFC USD 125 million, among others.
All these companies had one thing in common they tied up loans when the yen was depreciating, which was to be settled in dollars. Now, the tide is set to turn. Rising interest rates of the yen may push costs of yen-carry-trade, which is a swap cost for borrowing in the yen and converting into the dollars to invest and take advantage of low interest rates on the Japanese currency. The Bank of Japan, or BoJ, may raise interest rates in its August 23 meeting. Could this move hit the yen-carry-trade?
Tohru Sasaki, Chief Forex Strategist, JP Morgan Chase Bank, expects a 25 bps rate hike by BoJ. He feels that the move may not hurt the yen-carry-trade much.
Mark Tan Keng Yew, Director at UOB Asset Management, is not bothered with the yen-carry-trade situation. On whether he sees some kind of unwinding in the yen-carry-trade, as the yen went back to 118, he said, “Looking at the yen, it doesn’t seem to me to be a leading indicator of what is happening in the markets. It seems to be a coincidental indicator of the market situation. What I will be looking at more closely is the extent of lending that is coming through from the US and whether there is going to be any tightening of credit in other parts of the world.”
Chin Loo, Senior Currency Strategist, BNP Paribas, feels that US payrolls will be the near-term trigger for the dollar-yen movement. She has pegged the yen's base to be around 117.5 to the dollar, while the upside will be capped at 120.5.
Reliance Ports, Reliance Utilities and some other group companies raised USD 1.2 billion in March alone. While ADAG entities like Reliance Energy, Reliance Telecom, and Reliance Communications raised USD 640 million. Bharti raised around USD 3 million, JP Associates around USD 250 million, Rural Electrification Corporation USD 200 million, IRFC USD 125 million, among others.
All these companies had one thing in common they tied up loans when the yen was depreciating, which was to be settled in dollars. Now, the tide is set to turn. Rising interest rates of the yen may push costs of yen-carry-trade, which is a swap cost for borrowing in the yen and converting into the dollars to invest and take advantage of low interest rates on the Japanese currency. The Bank of Japan, or BoJ, may raise interest rates in its August 23 meeting. Could this move hit the yen-carry-trade?
Tohru Sasaki, Chief Forex Strategist, JP Morgan Chase Bank, expects a 25 bps rate hike by BoJ. He feels that the move may not hurt the yen-carry-trade much.
Mark Tan Keng Yew, Director at UOB Asset Management, is not bothered with the yen-carry-trade situation. On whether he sees some kind of unwinding in the yen-carry-trade, as the yen went back to 118, he said, “Looking at the yen, it doesn’t seem to me to be a leading indicator of what is happening in the markets. It seems to be a coincidental indicator of the market situation. What I will be looking at more closely is the extent of lending that is coming through from the US and whether there is going to be any tightening of credit in other parts of the world.”Chin Loo, Senior Currency Strategist, BNP Paribas, feels that US payrolls will be the near-term trigger for the dollar-yen movement. She has pegged the yen's base to be around 117.5 to the dollar, while the upside will be capped at 120.5.
Thursday, August 2, 2007
What Sectors & Stocks to look at now
In a market that is falling like nine pins, which stocks or sectors should you look at?
Ajay Srivastava of Dimensions Consulting likes Maruti Udyog, Tata Motors and Bajaj Auto in the auto sector. “I believe that Maruti Udyog is one standout performer which is there. A totally contrarian play would be Tata Motors, which will eventually come around into giving value. In two-wheelers, Bajaj Auto is a good play at this price, purely on account of the company’s demerger. We believe that the demerger, given Bajaj Auto’s price at Rs 2,000-2,100, should give substantial value to shareholders in the next six-nine months. These are the three plays that we are looking at quite closely at this time.”
In the cement space, Srivastava likes companies, which got capacity expansion running right through or almost peaking at capacity. In this space, he likes JP Associates. Speaking on the sector, he said, “Wherever we are seeing capacity coming up, it’s a strong play; wherever capacity has peaked out, there is nothing more going to happen there in terms of earnings surprises.”
According to Srivastava, with the kind of order book that it’s carrying on its books, there is no reason to worry about BHEL as a stock, for the next three years. He feels that it will outperform the rest of the pack.
On Bharti, he said, “If you look at Bharti it is reaching an inflection point, where the capex that they have done in the past is reaching capacity utilization. The new capex, which is almost USD 3 billion, is still to give revenues for the next two-three years. So, one can easily see and compare the valuation of China Mobile with Bharti, there is a way to go for the values.”
Neppolian Pillai of Modern Shares & Stock Brokers feels that the capital goods sector will hold on its own. “I think the capital goods sector is one of the strongest, the second strongest is banking, which looks like it is loosing steam and that could be the key.”
On capital good stocks, he said, “Most of them are near about their highs. It is still going to be a momentum play rather than a buying opportunity. At every fall one could trade but investing at these levels has not yet come in. One need to wait for some more correction in the sector to get in, but the sector is going to give only shallow falls. One needs to be a quick trader in that by trying to buy bottom and then try to sell the resultant high after that bottom. For investing, I think one needs to wait for sometime.”
On metals, he said, “One needs to continuously look at that sector when it comes down, to get into. One could play it as a momentum; you could play as an accumulation. The stock that catches the eye is Hindalco. If it falls up to Rs 165-160 levels, one can buy into it. One can trade Sterlite Industries as a momentum play for a rough target of about Rs 680 and Rs 727 that looks good as a momentum pick.”
According to Pillai, investors could look at Allahabad Bank and Bank of India in the banking space.
In the auto space, he feels the smaller auto ancillary stocks looks good from an investment perspective. “One can look Asahi India with a target of about Rs 130, which could be a return of about 30%. Another stock, which I like within the sector, is Tube Investments. I think Rs 63 to Rs 53 could be a buy zone. We should get a price target of about Rs 80 on the reversal, so that’s again an 20-25% return. One can look at Cummins India, a great stock with great momentum. This stock can do a target of about Rs 430. In auto ancillary, one can still invest on the downside,” he added.
Ajay Srivastava of Dimensions Consulting likes Maruti Udyog, Tata Motors and Bajaj Auto in the auto sector. “I believe that Maruti Udyog is one standout performer which is there. A totally contrarian play would be Tata Motors, which will eventually come around into giving value. In two-wheelers, Bajaj Auto is a good play at this price, purely on account of the company’s demerger. We believe that the demerger, given Bajaj Auto’s price at Rs 2,000-2,100, should give substantial value to shareholders in the next six-nine months. These are the three plays that we are looking at quite closely at this time.”
In the cement space, Srivastava likes companies, which got capacity expansion running right through or almost peaking at capacity. In this space, he likes JP Associates. Speaking on the sector, he said, “Wherever we are seeing capacity coming up, it’s a strong play; wherever capacity has peaked out, there is nothing more going to happen there in terms of earnings surprises.”
According to Srivastava, with the kind of order book that it’s carrying on its books, there is no reason to worry about BHEL as a stock, for the next three years. He feels that it will outperform the rest of the pack.
On Bharti, he said, “If you look at Bharti it is reaching an inflection point, where the capex that they have done in the past is reaching capacity utilization. The new capex, which is almost USD 3 billion, is still to give revenues for the next two-three years. So, one can easily see and compare the valuation of China Mobile with Bharti, there is a way to go for the values.”
Neppolian Pillai of Modern Shares & Stock Brokers feels that the capital goods sector will hold on its own. “I think the capital goods sector is one of the strongest, the second strongest is banking, which looks like it is loosing steam and that could be the key.”
On capital good stocks, he said, “Most of them are near about their highs. It is still going to be a momentum play rather than a buying opportunity. At every fall one could trade but investing at these levels has not yet come in. One need to wait for some more correction in the sector to get in, but the sector is going to give only shallow falls. One needs to be a quick trader in that by trying to buy bottom and then try to sell the resultant high after that bottom. For investing, I think one needs to wait for sometime.”
On metals, he said, “One needs to continuously look at that sector when it comes down, to get into. One could play it as a momentum; you could play as an accumulation. The stock that catches the eye is Hindalco. If it falls up to Rs 165-160 levels, one can buy into it. One can trade Sterlite Industries as a momentum play for a rough target of about Rs 680 and Rs 727 that looks good as a momentum pick.”
According to Pillai, investors could look at Allahabad Bank and Bank of India in the banking space.
In the auto space, he feels the smaller auto ancillary stocks looks good from an investment perspective. “One can look Asahi India with a target of about Rs 130, which could be a return of about 30%. Another stock, which I like within the sector, is Tube Investments. I think Rs 63 to Rs 53 could be a buy zone. We should get a price target of about Rs 80 on the reversal, so that’s again an 20-25% return. One can look at Cummins India, a great stock with great momentum. This stock can do a target of about Rs 430. In auto ancillary, one can still invest on the downside,” he added.
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