HOW RBI CONTROLS MONEY SUPPLY IN INDIA

1. What are the main instruments? Repo Rate, Reverse Repo Rate, Bank Rate and the Cash Reserve Ration (CPR)

2. The Repo Rate: This is the rate at which RBI releases funds into the system. It was at 6 percent in 2004 but is now at 7.75 percent.

3. Reverse Repo Rate: This is the rate at which RBI sucks out excess liquidity from the system. The reverse repot rate is currently at 6 percent.

4. Bank Rate: This is the rate at which RBI lends money to banks. It is currently at 6 percent.

5. CRR: This represents the percentage of deposits that every bank has to keep with the RBI. The RBI interest on CRR balance and increases or decreases the CRR when it wants to drain or ease liquidity in the economy. The CRR is now at 6.5 percent.

6. SLR : Statutory Liquidity Ratio is the percentage of deposits that banks have to deploy in government securities and works in the same way as CRR. It is now at 25 percent and has not been changed for a decade.

REVERSE MORTGAGE-MONEY IN YOUR HANDS:ANALYSIS HOUSE-BUYER-TIPS.BLOGSPOT.COM

AGE	60	65	70	75	80		85
Tenure in years	15	15	15	15	15	10	12	15
Property value in LAKH
10	1682.98	1752.63	1947.30	2176.62	2380.86	4494.51	3538.01	2515.06
20	3365.96	3505.27	3894.61	4353.24	4761.72	8989.02	7076.02	5030.13
30	5048.95	5257.90	5841.91	6529.87	7142.58	13483.54	10614.03	7545.19
40.	6731.93	7010.53	7789.21	8706.49	9523.44	17978.05	14152.04	10060.26
50	8414.91	8763.17	9736.52	10883.11	11904.30	22472.56	17690.05	12575.32
60	10097.89	10515.80	11683.82	13059.73	14285.16	26967.07	21228.06	15090.39
70	11780.88	12268.44	13631.12	15236.35	16666.02	31461.59	24766.07	17605.46
80	13463.86	14021.07	15578.43	17412.98	19046.88	35956.10	28304.09	20120.526
90	15146.84	15773.70	17525.73	19589.60	21427.74	40450.61	31842.10	22635.59
100	16829.83	17526.34	19473.03	21766.22	23808.60	44945.12	35380.11	25150.65

ANALYSIS BY HOUSE-BUYER-TIPS.BLOGSPOT.COM-WHETHER TO GO FOR REVERSE MORTGAE OR NOT IN INDIA

Before going for reverse mortgage consider following factors in India:

1.You are paid only for 15 years and its not life long.

2.Rate of interst being charged is approx 12%.

3.Property is revalued every 3 years and if property prices have gone down, you may not get any money for remaining years as you may have been overpaid post evaluation of property.

4.Be ready to maintain property otherwise it will be depreciated.

5.66% of reverse mortgage goes toward payment of interest and what you receive is 33%.

6.Amount of annuity depends on your age and value of property.

Note:Let better guidelines come and only then jump into agreement and do read the fineprint.

ASSISTING BUYER TO BUY YOUR HOUSE IN HIGH INFLATION ENVIRONMENT

In a declining market, it is not easy to sell your home with a fair price.

1.The buyers have limited resources as credit tightening has created the lack of liquidity that was fueling the real estate prices.

2.You need to work with the buyers directly.

3.Do not pay a broker to sell your house. In this market a broker is really worthless. If you have to list your home, make sure you can get out of listing any time.

4.Use the Internet as much as possible and tap the relocation market. Deal with buyers directly.

5.Take a home equity loan and provide the cash to the buyer to pay for their closing costs and down payment.

6.You could even work with your bank to provide the buyer a flex mortgage.

7.Use Internet escrow services to deal with the buyers.

8.Work with buyers to get your home inspected.

9.Remember, there are plenty of buyers who want your home but they just cannot afford the same. You must work towards making it affordable for them. Let us assume that you want to sell your home for 10 LAKH. If you pay 2% to a broker, your real selling price is 20,000/- less other closing costs. If possible you should take a home equity loan or other loan (if liquid cash is not available) and offer that 20,000/- to the buyer to help they buy your house.

10.The 20,000/- can be used as a cash incentive for the buyer so that they do not have come forward with closing costs. Put that up on your signs. You can also work with your bank to make sure the buyer can get a decent mortgage. The 20,000/- you saved by getting rid of the broker can be used to pay for the down payment, points, and other closing costs for the buyer.

11.Communicating directly with the buyer with these kinds of incentives is proving far more effective than using a broker in the current market place.

HIGHEST PROPERTY PRICES:ANALYSIS BY HOUSE-BUYER-TIPS.BLOGSPOT.COM

1.The highest property prices are being seen in London followed by Morocco.

2.In India the property rices have peaked and are likely to see a drop in prices as Reserve bank of India has tightened the liquidity and thus home loan rates have gone up.As a result only genuine buyers are buying the property and speculation has reduced.

RENTAL VALUES HAVE PEAKED IN INDIA:ANALYSIS BY HOUSE-BUYER-TIPS.BLOGSPOT.COM

1.The rental values have topped in India and rates are likely to drop in near future.

2.Gurgaon is seeing a peak rental value of 80 Rs per square feet but the rentals are likely to be dropped to 50-55 Rs in 12 months time frame.

ANALYSIS WHETHER TO BUY A HOUSE OR STAY IN A RENTED HOUSE

We all need a house to live in. However, the choice that needs to be made is whether one should stay in a rented house or buy it instead. In the present scenario, the cost of living in a metropolitan city is rather high. Also, the property prices and home loan rates are moving up sharply.

Given that both buying a house and renting it have their unique set of costs attached, one must evaluate both the options closely and then make an informed choice.

If an individual stays in a rented house, he could be paying a substantial amount as rent, depending on the location and the area of the property.

On the other hand, if he buys a house by taking a loan from a housing finance company (HFC), at the end of the stipulated period, he may find that the total repayments on the loan far exceed the actual value of the house. In this article, we conduct an evaluation to help you determine whether it's better to buy or rent a house.

Let's consider an individual (say Kumar) who lives in a metropolitan city (say Mumbai) and earns Rs 45,000 per month (pm) as salary. In terms of housing, he has two options; either live in a rented premise or take a home loan and buy a property for himself.

The assumptions for the purpose of this discussion:

1. Kumar gets a 5% increment on his salary every year and he falls in the highest tax bracket i.e. 30.9 % (including education cess);

2. There is no change in the tax laws during the period considered, i.e. 20 years.

Option 1: Live in a rented house

Tenure of residency	Yrs	20
Rent per month	Rs	13,500
Annual rent	Rs	162,000
Initial deposit	Rs	100,000
Increase in rent (pa)	%	5
Result:
Total expenditure on rent (over 20 years) [A]	Rs	5,356,685
Tax benefit on house rent (over 20 years) [B]	Rs	1,103,477
Loss of interest on account of deposit (over 20 years) [C]	Rs	366,096
Total expenditure on rent after accounting for tax benefits (A-B+C)	Rs	4,619,303

In the first option, Kumar stays in a rented house for 20 years and pays Rs 13,500 pm or Rs 162,000 per annum (pa) as rent. Besides the rent, he pays an initial deposit of Rs 100,000. The house rent increases by 5% pa.

Thus, over the 20-year period, Kumar will pay Rs 5,356,685 as rent (for the initiated, this is the future value of all the rent installments). However, as per Section 10(13A) of the Income Tax Act, an individual can claim tax benefits on the house rent allowance that he receives. Therefore, we estimate that Kumar gets a tax benefit of Rs 1,103,477 on his house rent over the 20-year period.

As mentioned earlier, Kumar pays an initial deposit of Rs 100,000 (refundable once he vacates the house). We have assumed that if this amount were to be invested in an investment avenue fetching 8% return pa, then, at the end of 20 years he would have earned Rs 366,096 on his investment.

Since the Rs 100,000 is inaccessible for 20 years (as a deposit); Rs 366,096, which he could have earned by investing the deposit amount, is an opportunity loss.

Taking into consideration all these aspects, i.e. his expenditure on house rent, the opportunity loss and the tax benefit he would receive, the net expenditure for renting the house would amount to Rs 4,619,303.

Option 2: Take a home loan to buy a house

Cost of the house	Rs	2,500,000
Loan amount	Rs	2,000,000
Tenure of loan	Yrs	20
Rate of interest	%	12
EMI	Rs	22,022
Initial payment:
(a) Personal contribution (20% of property cost)	Rs	500,000
(b) Stamp duty (8% of property cost)	Rs	200,000
(c) Registration (1% of property cost)	Rs	25,000
Total initial payment (a+b+c)		725,000
Result:
EMI outgo (over 20 years) and initial payment [A]	Rs	6,010,280
Tax benefits received from EMI (over 20 Yrs) [B]	Rs	1,235,173
Loss of interest on account of initial payment (over 20 years) [C]	Rs	2,654,193
Total expenditure after adjusting for tax benefits (A-B+C)	Rs	7,429,300

Suppose Kumar decides to take a home loan and buy a house. The cost of the house is Rs 2,500,000. He takes a home loan of Rs 2,000,000 from an HFC for a tenure of 20 years at 12% rate of interest.

The balance amount will be paid as initial payment (HFCs finance around 80% of the total cost). Therefore, the total sum required as initial payment for the property is Rs 725,000 including stamp duty (8%) and registration charge (1%).

Based on the loan amount and the interest rate, his EMI (equated monthly installment) is Rs 22,022 pm. Thus, Kumar will repay Rs 6,010,280 (including initial payment) towards the home loan.

However, he can also claim tax benefits under Section 80C and Section 24 of the Income Tax Act on the home loan repayments (towards interest and principal). With this, we estimate he can claim a tax benefit of Rs 1,235,173 on the home loan.

If Kumar had chosen to live in a rented premise and not buy a property, he would not have made the initial payment of Rs 725,000.

Furthermore, he could have invested the same in an investment avenue offering 8% pa. At the end of 20 years, he would have earned Rs 2,654,193 on his investment. Effectively, this amount is an opportunity loss for Kumar.

After taking into consideration all the aspects such as total home loan repayments, tax benefits and the opportunity loss, the net expenditure on buying a house would amount to Rs 7,429,300.

On comparing the two options, one would find that over the 20-year period, the option to live in a rented house (total expenditure Rs 4,619,303) turns out to be much cheaper than buying a house on loan (total expenditure Rs 7,429,300). However, this cannot be taken as conclusive since there are other essential factors that also need to be addressed.

1. Although the option of staying on rent seems cheaper, individuals should appreciate that by buying a house they are creating an important asset for themselves.

2. While staying on rent would be a pure expenditure, buying a house should be regarded as an investment, as an asset is created for the home buyer. The asset's value is likely to increase over the course of time (a vital factor that we have not considered).

3. In our illustration, we have made some assumptions. Now, if any of these assumptions related to the interest rates, rent payable or tax laws were to change, they will have a significant bearing on the end result.

For example, if the home loan interest rate was 8%, then the net expenditure on buying the house (after adjusting for tax benefits) would be Rs 6,277,025 (as compared to Rs 7,429,300 in the current example).

Similarly, if the rent of the house were Rs 20,000 (instead of Rs 13,500; this is possible if the demand for rental properties were to increase significantly), then, the net expenditure on rent would rise to Rs 6,922,578. This clearly proves that a change in the assumptions can radically alter the end result. For instance, under the revised assumptions, buying a house would be more economical vis-�-vis staying on rent.

It should be understood that whether an individual buys a house or stays on rent is on one level largely a personal choice. There are factors, financial as well as non-financial (individual needs and aspirations), which need to be considered while determining the feasibility of options.

At this blog, we maintain that every individual must own property (for residential purpose), as the same has a vital role to play from an asset allocation perspective.

To that end, buying a property should be taken up on priority, and discretion can be used in terms of the location and size of the property.

courtesy reference.com

TIPS FOR HOME BUYERS

1. Buying a home is perceived as one of the most complicated transactions a person can make. That is why Countrywide Home Loans, is offering six home buying secrets that most first time buyers don't know. These helpful home buying tips may reduce confusion about mortgage payments and the cost of buying a house.Countrywide Home Loans understands that home buying can be a difficult and confusing process, from deciding whether homeownership is right for you to finally making the move into your new home. As a result, many people are hesitant to ever start the process, despite their desire to own a home. So, the company also offers personalized, no obligation, free home loan consultation.
2. "Consumers are becoming more educated and prepared when making major purchases," said Dan Hanson, managing director, Countrywide Home Loans. "However, buying a home is still an area that is confusing and intimidating to most people. Prospective buyers should take advantage of the wealth of information and programs out there and be aware of some common misperceptions that could deter them from becoming a homeowner."Here are six home buying tips and facts that can help you decide to buy a house, negotiate your home purchase and determine which home loan is best for your personal situation:1. Your mortgage payments might be the same or less than rent payments - The (principal and interest) monthly payment on a $200,000, 30-year, fixed rate mortgage with an interest rate of six percent (6.25%) is $1,231 -- less than what some people pay for rent (taxes, insurance and any other fees, including closing costs, are extra).
3. Buyers don't have to put 20 percent down to buy a home anymore - Many low down payment loans are available. For instance, three and five percent down payments are common, and can help buyers purchase a home without a hefty down payment. This all adds up to less money out-of-pocket to buy a home.3. Buyers may ask sellers to pay for closing costs - As part of the negotiating process when buying a house, the buyer may ask the seller to pay for a percentage of the non-recurring closing costs, sometimes saving thousands of dollars for the buyer.
4. Buyers can receive gifts or grants from relatives or nonprofit organizations - Many loan programs will allow a portion of the down payment to come from a relative. Buyers can also investigate down payment assistance programs and grants available through various nonprofit organizations and employers, as well as from many federal, state, and local governments. Many of these programs are designed for low-, moderate- and middle-income borrowers.
5. You should always get preapproved before you begin house hunting - Buyers should get a written preapproval from a reputable mortgage lender before they start shopping for a home. Preapproved buyers will not only know in advance how much home they can afford, but their preapproved status gives them clout with sellers and real estate agents when the time comes to negotiate a sale price. Lastly, preapproval speeds up the loan process after a purchase contract is signed and can help avoid last minute heartbreaks after a home is found.
6. You can protect your interest rate while you shop for your home - Some lenders, like Countrywide, offer home buyers the ability to lock in a rate, at no cost, before they select a home.

TIPS FOR HOUSE SELLERS

Below are 10 tips to make the most of your open house:

1. Maximize Curb Appeal: The old saying is true: you only get once chance to make a good first impression. Make sure that the outside of your home looks as appealing as possible. Water and mow the lawn, trim the trees, cut back overgrowth and plant colorful flowers in the front and back.

2. Clear the Clutter: Be sure to store bicycles, gardening equipment, and children's and pet's toys. Also, you'll want to move any cars from the driveway and even along the curb in front of your home.

3. Make Your Home Anonymous: Of course you're proud of your family, but now is not the time to show their pictures and mementos. You want buyers to imagine their families in the house.

4. Make Necessary Repairs: Look at your house with a critical eye. The last thing you want potential buyers to see are chipped tile in the bathroom, a faucet that doesn't work, or burned out bulbs in light fixtures.

5. Cosmetic improvements: Simple, cosmetic touch-ups like painting, wallpapering, adding new light fixtures, and minor landscaping, can really help a home show better. If you paint, make sure it's in a neutral color.

6. Spic and Span: Potential buyers will want to inspect every part of your home, from the kitchen to the bathrooms to the garage. You need to create a positive experience for them. Remove all clutter and clean the inside of the house from top to bottom.

7. Consider using a stager: There are creative professionals who can make your home shine for potential buyers. They may remove your furnishings, pictures and mementos and replace them with carefully selected items designed to make your house look like a model home. Your Realtor can help find the right professional stager for your home.

8. Offer Fact Sheets/ Brochures: Your Realtor will provide prospective homebuyers with information about your property. These will include details about the home's best features, your neighborhood and other relevant information. Photographs help prospective buyers remember your home.

9. Protect your valuables: Thefts during an open house are rare, but it can happen when you have strangers coming into your home.

10. Make Yourself Scarce: It's time for all of you to leave. If you aren't there, it's easier for your sales associate to answer questions candidly. Potential buyers feel more comfortable discussing pluses and minuses and talking about changes they might make to the property if its owner isn't around.

These tasks may seem a little overwhelming at first, but your Realtor can help with many of them - or find someone who can. In the end, the time and money you invest upfront in making your property shine will pay big dividends in getting you the best possible price for your home.

ARRANGE FOR PRE APPROVED HOME LOAN BEFORE VENTURING FOR PROPERTY:ANALYSIS BY HOUSE-BUYER-TIPS.BLOGSPOT.COM

1.Let’s assume you find that dream home or at least a starter home you are comfortable with. Most first timers immediately get that glazed look in their eyes where they start visualizing the placement of their furniture.

2.Next thing you know, they have made an offer on the property. If the offer is accepted, they are ecstatic until the suddenly realize they have 30 days or so to get a mortgage lined up. They then race off to a lender and pray it all comes together in time.

3.Taking this approach is extremely stressful and you should avoid it if possible. One of the simplest, yet most effective, mortgage tips is to focus on timing. In this case, I am referring to the timing of the application for your mortgage loan.

4.Simply put, you want to apply before you ever go house hunting. This process is known as getting pre-approved for a loan and it will make your life so much easier. The advantages of getting pre-approved for home loans are many.

5. First, you are under no deadline related to the purchase of a home. If there is a problem, you can deal with it in a calm, mature manner. Second, you know exactly what you can afford when you go house hunting because the bank will have already told you. Third, you are going to be far more attractive to sellers because you:ANALYS already have your financing lined up. This makes them more comfortable because there is one thing less for them to worry about.

6.You can also use this to your advantage by negotiating a better deal with them. If this is your first time buying a property, you can make life a lot simpler for yourself by getting pre-qualified by a mortgage lender. Once you know what you qualify for, you can get out there and shop till you drop for your dream home.

BODY LANGUAGE FOR BUYERS AND SELLERS

1.Powerful negotiators know how to survive in any market. Do you have the necessary skills to cope with today's shifting market?

2. Don't ever describe any buyer or seller in derogatory terms This seems obvious, but it's common for agents to refer to buyers who make low offers as "lowballers," "bottom-feeders," "chiselers" and other unflattering terms.

3.It's also common for agents to refer to sellers as being "greedy" or "stupid" when the sellers insist on overpricing their property. Making these types of remarks about your client or another agent's client only reflects badly on you.

4.It also sets up a difficult negotiation situation because once you place a negative label on a client, you have to overcome the negative label as well. For example, if your buyers purchase a property where you called the seller "greedy" and the seller refuses to do some of the unreasonable repairs that the buyers may request, then your buyers are much more likely to become angry.

5.Furthermore, you can be confident that your buyers will parrot back to you how greedy the sellers are by not responding to their request. In fact, it could cost you the transaction. Remember, when it comes to negotiation, your mother was right. "If you can't say something nice, don't say anything at all."

6. Substitute factual descriptions for emotionally charged words One of the greatest challenges you will face in a slowing market is to decide how you will approach sellers when you have a low offer. The following script is one that works almost every time: Mr. and Mrs. Seller, I would have liked nothing better than to have brought you a full-price offer. That would make my job very easy. Instead, my clients have elected to make an offer that is substantially below your asking price. About 50 percent of the time, we can put these offers together. I would like to ask that you give me a counteroffer in order to determine whether this offer will be part of the 50 percent that will actually sell.

6. Don't get mad -- get even! Every so often, sellers may become so angry at a low offer that they are ready to cancel your listing, even if you aren't responsible for the low offer. If the sellers are so irate that there is no way they will do a transaction with the buyer, here's a script that normally defuses the situation. Mr. and Mrs. Seller, there are three ways to handle this situation. You can elect not to make a counteroffer or you can counter at full price. If you are so angry that you don't want to have anything to do with this buyer, however, you could write a counteroffer over asking price. I have used this script many times and had two sellers who did counter over asking price. What began as a very volatile situation became something that gave the sellers a sense of power. "We sure showed those buyers!" Furthermore, instead of feeling frustrated over not selling, the sellers actually were laughing. It had never occurred to them that if someone was unrealistically low they could make a counteroffer that was unrealistically high.

7. Shift from "I" language to "you" language When you use the word "I," the focus is on you. An important shift to make is to eliminate "I" language wherever possible. For example, if you say, "I think you should counter at $375,000," the emphasis is on you rather than on what the seller wants. In contrast, when you use the word "you," the emphasis falls upon your client. "It's your house and it's your decision. Where would you like to make your counteroffer?" Another word to avoid is "we." When "we list your house," when "we get an offer," and when we "close the transaction," "we" end up having to pay when things go wrong.

FIRST TIME HOME BUYERS TO PAY LESS FOR HOME LOANS

1.It has been mooted as a proposal by Indian finanace ministry that the first time home buyers may be given a rebate of approximately .50 Basis Points to enable first time home buyers to get a cheap loan.

2.So hunt the best home loan from public sector banks who are likely to be issued with this diktat by finance ministry and they will have to toe the line.