A resale property:
Who does not wish to live in a house of their own? Buying a new flat will take a long time, so some of us may wish to settle for buying a resale property. However buying a resale property could involve many legal and other procedural requirements. It is prudent to first understand the various procedures and safety measures for buying resale property to avoid hassles in future.

Buying Resale Property –A Guide

Consult Experts:

It may be ideal to engage a good real estate agent to locate a resale property. He would be in a position to locate sellers as well as guide you regarding the price of such properties in different localities. They would also be in a position to tell you about the seller of the property. Most real estate agents charge a fee and also help with registration, payment of stamp duty and other paper work involved in the purchase of resale property. In addition, taking the help of a good lawyer would also help to make sure that things are clear legally also.

Title of the property:
It will help engaging experts like real estate agents and lawyers to help you, but it is always better to be well-informed yourself when entering into deals for buying resale property. The first step in this regard would be to establish the title of the seller; whether he is the real owner of the property or has been given the power of attorney to transact the deal. All the documents with regard to the property need to be clear. In addition you need to make sure that all the original documents with regard to the property that were given by the builder or original developer are in order.

Documents:
Buying resale property seems great, but it could become a big problem if the documents regarding the original purchase and subsequent transfer of title are not properly stamped. Firstly it could pose great problems especially if you want to apply for a loan for purchase of the resale property. Subsequently it could prove to be unacceptable in case you wish to transact further on the property.
Existing Loan:
It is also necessary to make sure that the property documents are not lying mortgaged in the bank’s custody against a loan taken by the seller. The bank will consider a loan only once the loan taken by the seller is repaid and the documents released.
Loan Eligibility:
Buying a resale property would definitely provide you with a bigger space in case of older properties. However it is best to note that some banks may not lend money on buildings older than 10 years. This may be due to the reason that they may not want to take the risk of the price of the property going down. Banks also make sure to ensure that the bank’s outstanding loan should always be lower than the value of the property in the market.
Property Valuation:
Next it is imperative to note that the loan amount is highly dependent on the cost of the property. Technical experts would evaluate the property. However it would be useful to yourself avail the services of a property valuator at a small fee before approaching the banks. The bank’s property valuator may valuate the property at a much lower rate. They would also like to safeguard their interests against the fall in the price of the property in future.
More Down Payment:
Most banks wish to make sure that you be responsible for the maintenance and good upkeep of the resale property. So banks would expect you as the purchaser of the resale property to pay a certain percentage of the price as down payment. You may have to pay about 20% of the price as down payment; property of 50 lakhs requires 10 lakh as down payment.
Age of the property:
This down payment could be more in case of older properties. In addition, banks usually lend only on properties that are unto 50 years old. The tenure of the loan also decreases with the age of the property.
Flat Society:
The bank may grant the loan and you may make the down payment, but there could be another problem. It arises out of the need for some Flat societies that require the payment of a heavy price for change of ownership. It is best to consider this cost also when coming to a conclusion while purchasing resale property in cooperative and other societies.
Conclusion:
Buying resale property would give you a chance to settle in your own house fast and save you of high rents paid and the need to frequently shift your place of living. Taking a loan from the bank could give you tax deductions on the interest paid soon. You would not have to wait till the possession as in the case of new flats. It is always prudent to be well informed about the various details of the resale property.


The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://www.holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

Planning for contingencies like death and hospitalization also forms an important part of financial planning. Buying life insurance provides for the living expenses of bread earners family in his absence on death. Let me debunk a few insurance myths today so that you will be able to take better financial and investment decisions.
Myths about insurance:
Myth 1: Life insurance is a waste of money. But it is good to understand that it is bought to protect ourselves from the contingency of untimely death. It would give finances for living expenses of your family if you die young. Life insurance is an investment that is more a safety mechanism; it is to provide financial security on death. Term policies that cover the risk of untimely death only are cheap and most ideal for providing life coverage alone.

Myth 2: Life insurance is taken to save taxes. This could probably be a selling point for agents. But far from the truth tax savings is one of the benefits arising from life insurance. The main benefit is the provision of finances in the case of the death of the policy holder. Saving taxes alone can be done by other tax saving instruments like mutual funds, tax saving bonds and Government bonds, post-office savings schemes and PPF. So paying premium to cover the full financial needs of the family in case of the death of the bread-earner is very important. This is about 7 to 10 times the annual income.

Myth 3: There is no need for life insurance in case of very young people. This is a wrong notion for death is something that could happen to anyone at anytime and in any way. The common notion that people die when they are old may be true to a large extent. But covering of risk of death is definitely better than to be left financial bereft in case of an untimely death. In addition it is smart to take benefit of the lower premium rates offered to the young. Also you may find it difficult to take life insurance when you are old due to higher premium rates or being refused because of ill-health.

Myth 4: Life and medical insurance is provided by employers, so we need no life insurance. This benefit is available only until you are in a particular company or till retirement. Also life insurance provided by employers may not adequately cover the living expenses of your family in case of your untimely death. It is smart to buy medical insurance young, as fresh medical insurance taken just prior to retirement could be refused on medical grounds. Critical illness policies help meet additional living expenses of the family in case of critical illness.

Myth 5: Unit linked plans for a limited period seem attractive. I would say that this is more of a sales gimmick in many cases. Most insurance products are so designed that the major costs are incurred in the first few years and deducted from premium. There are charges that the company wishes to recover over the entire tenure of the policy. So very less is actually invested in units. So it is best to look at unit-linked insurance plans with an open mind and consider a commitment of periodic investment for the whole tenure of the insurance policy. Paying for a longer tenure could result in a more profitable proposition.

Myth 6: Buying a policy in the name of a minor child is best. This emotional sentiment selling point has helped many to sell insurance. Also the premium paid on child policies may be much less than an adult wanting the same coverage. A life insurance policy is taken to replace loss of income to the family, so taking a policy where the child is a beneficiary or nominee may be smarter.

Myth 7: Pleasing your friends/relatives/associates is very important.
Kindly avoid taking policies just for the sake of satisfying your friends and relatives who are insurance agents. Also you need to avoid taking policies just to maintain the relationship with business associates like bankers.
Insurance policies need to be taken to based on the need. Now a days online term insurance are 50% cheaper when compared to the term policies taken through agents or brokers.

Having understood these myths I am sure dear friends you would make insurance a very valuable and useful proposition for you.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://www.holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

What is reverse mortgage?

Increased life expectancy has lead to the increase in the costs of living and medical expenses. This makes it difficult for many senior citizens that lack a regular income to live a life of dignity. Reverse mortgage is the solution introduced by the Union Government of India in 2007 helps senior citizens.

Understanding the concept of reverse mortgage better:
Reverse mortgage is the opposite of a conventional housing loan that needs to be paid back with interest over a period of time. Reverse mortgage helps senior citizens having a residential property to receive a regular income against its mortgage. The borrower and his/her spouse are allowed to stay in the place of residence until both die, aiding the living of a dignified life by senior citizens.

Workings of reverse mortgage:
A senior citizen couple should necessarily own a flat or house. Then they can pledge the property for a monetary value agreed upon by the bank. The value is generally fixed considering the present property values, demand and also the condition of the property. The bank starts periodic payment as a loan that is decided after consideration of margin of interest costs and price fluctuations in the property. It is an ideal solution for senior citizens that have residential property, but no finances for regular day to day expenses and medical aid. The borrower’s interest in the property decreases once the reverse mortgage EMI begin.

Guidelines for reverse mortgage:
The guidelines set by the Reserve Bank of India state:

 The maximum amount of the loan given generally as EMIs cannot exceed 60% of the property value. In addition the minimum period of the mortgage is 10 years, and maximum 15 years. However some banks have been recently offering tenure of about 20 years.

 The borrower can avail of the loan in parts every month, every quarter, every year or in a lump sum.

 The lender/bank would revaluate the property once in 5 years. If the value of the property has increased, the borrower has the option to ask for an increase in the amount of loan. He can also ask for the additional amount to be given in a lump sum.

 The installments or lump sum received in a reverse mortgage is a loan and not an income. Hence no tax is payable on it. However he has to pay capital gains tax when the property is taken for the borrower for the repayment of the loan on the mortgage.

 The interest paid on the reverse mortgage could be floating (fluctuating) or fixed, with this rate depending largely on the interest rates prevailing in the market.

Eligibility for reverse mortgage:

A senior citizen can avail of reverse mortgage on his/her house or property when:
 He/she is above the age of 60 and his spouse that is a co-applicant is above 58 years of age.

 The property is the permanent residence of the individuals and is self-occupied. The property should be self-acquired and located in India. The title should be clear of the borrower’s ownership.

 It is mandatory for the property to be free of encumbrances and it should have a minimum life of about 20 years.

Settlement of reverse mortgage:

 The reverse mortgage loan is payable on the death of the last surviving life partner. It could also become payable when the borrower sells off his/her property. In such cases the bank gives the choice to the heirs to settle the loan with accumulated interest. Otherwise the bank arranges to recover the same with the sale of the residential property.

 Any extra amount that remains after the loan with interest and expenses has been settled is passed on to the legal heirs. If the sales proceeds are much less than the loan, the bank. In case of losses that could occur due to wrong estimation by the bank is borne by them.

 The loan could be foreclosed when the borrower has not continuously stayed in the house for a year or has failed to pay property taxes or insure the house. The loan is also foreclosed when the borrower turning bankrupt, donates or abandons his property. In addition renting a part of the house, adding an extra name to the ownership could all affect the lender’s interests and lead to foreclosure of the mortgage. Government statutory provisions could also require it.

Some other highlights of reverse mortgage include the borrower’s option to prepay the loan with interest. Also one or both spouses could outlive the period of the tenure. Then the bank will stop payment of monthly installment. They will however wait for the both the borrowers to die before settlement. Reverse mortgage involve long, tedious, difficult and complicated procedures. In addition they have no provisions for increase in monthly payouts.

Lastly reverse mortgage has failed to gain much popularity in India, with marketing strategies being inadequate. The reason is also that many banks are fixing the maximum limit of loan. The resentment among the heirs and family sentiments are also some of the other reasons. It is true however that reverse mortgage is the solution for financial sufficiency in lives of most senior citizens.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://www.holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

Stories of financial infidelity:

Mahesh, a successful upcoming software engineer’s life was in a real mess; it is good he realized it at least now. He had come to meet me for financial advice and plan. He started doing online trade after learning that his colleagues were making a lot of money. But he had lost heavily due to his ill-luck, inexperience and lack of knowledge. He indulged in tactics of taking loan from one to repay the other and taking loans from another to repay the earlier loan. Mahesh was in debt to the extent of 20 lacs, and his creditors were pressurizing him to pay back loans given. So far he has not disclosed all these things to his young loving wife, Lekha.

Mahesh believed that Lekha was no good at finances and was just home bound. He also believed that he had to support her, but had no moral obligation to reveal anything else to her. Lekha was shocked to know that Mahesh was deep in debt. She was sensible and thrifty and thought they would soon lead a comfortable life, but her dreams were shattered and she was forced to sell all the jewelry and some of the household things that her parents had given her in marriage. They found that affording the rent of their flat was also too much, so they had to move to a smaller flat.

Lekha was happy for she knew at least now and could keep a track of Mahesh’s finances, but she lost faith in Mahesh as he hid vital financial information from her and decided that she had to start earning also to feel financially secure in their relationship. Mahesh’s financial infidelity has broken the very foundation of their marital life that is based in trust, confidence and open discussion of all vital issues.

Financial infidelity could go further in various other respects like the case of Ankit that hid vital information about the salary he earned and the increments he got, the loans he took, and the number of credit cards he used. He died of a severe cardiac arrest at the tender age of 32, and this was a shock not only to his wife and children, but also to his parents and in-laws.

Ankit’s wife Anila believed that he had taken sufficient insurance to protect the family in case of his death. She also believed that he had enough savings. But Ankit a poor money manger had huge credit card dues, as he had borrowed for family expenses. Also he had a sizable amount of car loan and home loan. He had the habit of paying only the minimum due on credit cards. Besides he had defaulted payment of premium on some policies.

Anila was shocked and disposed off their flat and car to close the loans. She was left with very little from the insurance Ankit had. She only wished that Ankit had told her everything so that she could have set aside enough for the family and not had to send their son Amit to a government school and have no finances for his future education.

Recognize when there is financial infidelity:
Mutual Trust:
As the couple ties the knot and takes the marriage oath, it seems so pleasant, but I would say trust and respect for each other need to be for life. The break of trust and respect in major financial matters amounts to financial infidelity. I would say that transparency in marital relationships is very important and could help save situations that are irrevocable.

Financial Openness:
This applies to revealing the number of bank accounts a partner has and the nature of transactions made. You need to have an open discussion with your spouse on the financial matter like the number of credit cards you have, loans you borrow, investments you make, tax you pay…

Family Support:
You need to inform all your family members and dependents about your financial and debt status. Then you will be able to take decisions with much more clarity. Moreover, if your family members know about your debt, they will also change their spending habits and support you in getting out of debt faster

Equal Weight:
You could definitely be not guilty of financial infidelity if both your partner and you consider that equal weight should be given to both views in financial affairs. This is also necessary for the strong foundation of your relationship and family.

Spirit of compromise:
It is true that mutual trust and respect coupled with compromise can do a lot to remove financial infidelity and save the extreme situation that we have seen in the case of Mahesh’s and Ankit’s family. A spirit of compromise could definitely save financial infidelities that have their roots in selfishness on the part of one of the partners. This also apples to relationships that is emotionally vulnerable with one partner feeling inferior or being terrorized emotionally.

Lastly I am sure you would all refrain from the guilt of financial infidelity that could not just ruin the financial position of families and their overall peace, but could also cause certain devastating relationship issues that could not heal even in a lifetime.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://www.holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

Every day we hear people talk about quarterly reviews of companies, the balance sheet, the result season, etc. If company reviews are so important, then why not the review of an individual's financial situation? In fact, taking stock of your current financial situation should form an integral part of your personal introspection regimen.
But this should not be just a one-time process -- it is important to review your current financial situation on an ongoing basis.
Let us see why this is important:
Life is dynamic! No one knows what tomorrow holds. Everyone's dreams, needs, and aspirations keep on changing with different stages of life cycle or circumstances in life. These circumstances could be anything like:
Marriage: Brings about a very big change in life. An individual's expenses suddenly double up and likewise the income too doubles in many cases. Hence, not only is it important for accounting the increased expenses but also to take into consideration the increased income if any.
Not only will marriage bring about a change in your finances but also in your goals. Goals like buying a house, planning for kids and their future. Hence if a constant review is done, you have an exact idea as to where you are and what kind of adjustments or changes are required post marriage.
Kids: Children bring about a joyful change in life. Additional day-to-day expenses, their educational expenses, medical expenses, getting them married, leaving behind inheritance becomes an integral part of your financial plan. Hence, the change has to be accounted for.
Death: Death of any member of the family can be life changing. In case of death, there can be added responsibilities or deletion in responsibilities. Both ways, there is bound to be a major turmoil in your finances.
Hence, constant monitoring by both the husband and wife helps in keeping abreast with your finances and you are prepared for all eventualities.
Change of employment or business or place: Can have a negative or positive impact on your finances -- whichever way adjustments are required.
Inflation: Again a big factor. I am sure everyone will agree with me especially after what they must have seen in last few year. The adjustment in finances based on inflation is a must.
There can be many other factors like say illness, windfall gains or something else that affect your finances. A constant monitoring of your finance helps you to adjust all of these in best possible manner and also help you in planning your finances in the most optimum manner.
The benefits of reviewing your financial plan
Let us have a look at the benefits of constant reviewing of your financial situation.
Budget is the first step towards organising finances. A lot has been written about budgeting. But how many of you actually sit down to review your budget every month, that is, compare the projected expenses with the actual expenses? Or one month's budget with another or one year's budget with the previous year?
Not only is it important to maintain a budget on a regular basis but also to sit and analyse it. This will help you know whether you are going overboard and if so, where. Although you might be saving money at the end of the month, with just keeping a regular review you will be amazed as to how efficiently you can cut your expenses and end up increasing your present savings.
Also a regular review of your finances will help you know how much contingent fund or emergency fund is required. Ideally an amount equivalent to three-month of your mandatory monthly expenses can be set aside as emergency fund.
It is also important to prepare a statement of net worth wherein all your assets and liabilities are listed. A constant reviewing is required so as to know whether you are going overboard in borrowing or what is the exact status of all your assets. Opening this sheet gives you an overall view of your financial situation and hence a constant updating is a must.
Insurance is a very important aspect of financial planning. Why a constant review or monitoring?
As explained earlier life keeps on changing and with additions like marriage or children the insurance requirement increases. Again individuals with ULIPs have to monitor their account statements to know how it is performing.
One more important fact: monitoring also helps you to remember to renew your mediclaim insurances and term plans and reminds you to p ay your premium on time. For individuals above 45 it becomes difficult to get a new mediclaim policy.
Investments are done to aide you in achieving your goals and have a financially secured future. It is very important to monitor these. You should know whether your hard-earned money is earning for you or not.
Many a times there are changes happening with regards to an investment, say for example, a fund manager of a mutual fund has changed or change in some rules which might lead the fund to not perform or in stocks like a particular sector is not performing or there is bonus, or problems in company, or rights have been issued.
Monitoring will keep you abreast with all these changes and you know your status and if need be change them at an appropriate time and not after incurring losses.
Frequency of review
Depending on your financial plan (your asset allocation, size of assets, nature of assets) the frequency of review differs for everything.
Budget: Every month.
Investments: At least every quarter. Do note that although you are reviewing the status of your investments every quarter it does not imply that you need to shuffle your portfolio every quarter. If your portfolio is planned as per your goals and time frame in which you need to achieve them then all you need is a review. Shuffling is a big no-no unless, a big change has happened in your life or you are actively following the stock markets and you trade 20 percent of the portfolio or some new guidelines in investment avenues have been announced which might lead you to redeem your investments.
Complete financial plan (which includes review of goals, statement of net worth, insurances and again cash flow and investments): Once every year unless a big change has happened.
Life is uncertain and much more uncertain is the events that happen during a lifetime. While you cannot change the course of events, being prepared at least financially and knowing what your options are at each and every stage of life can give you a sense of reassurance, stability, and the much-needed peace of mind.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://www.holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in