Purchase home with some financial due diligence - Economic Times Purchase home with some financial due diligence - Economic Times

Saturday, May 19, 2012

Purchase home with some financial due diligence - Economic Times

Purchase home with some financial due diligence - Economic Times
In his mid-thirties , Sridhar is contemplating on buying a house. While the food inflation breached the doubledigit mark recently, the overall inflation shows no sign of taming down. Amidst the reigning financial uncertainties , Sridhar is undecided on taking a home loan to the tune of Rs 50 lakhs. A home loan is a huge financial burden and borrowers must have a safety net in place.

Is your safety net in place?

Optimum loan amount

How should you arrive at the right amount to borrow? The number of dependents, other debts, additional sources of income, expenditure level and interest rates has a direct bearing on the right loan amount.
Lenders know pretty well that borrowers cannot afford to spend more than 40 percent of their gross salary towards a home loan repayment. When estimating the home loan amount, ensure that you take into account additional costs like stamp duty and other legal fees.

Consider a scenario where Sridhar takes a loan to the tune of Rs 40 lakhs. For a tenure of 15 years, at a 10 percent rate of interest , his monthly EMI is Rs 43,000. If Sridhar's loan amount was Rs 60 lakhs, his EMI will be Rs 64,000.

Borrowing less translates to lesser monthly financial commitment towards a home loan.

Factor in rate increase

Floating rate loans can fluctuate in either direction . A drop in the rate will translate into monthly savings . On the contrary, a rate hike can lead to increased financial outgo.

Consider a loan amount of Rs 40 lakhs. For a tenure of 15 years, at a 10 percent rate of interest, Sridhar's monthly EMI is around Rs 43,000. If the interest rate goes to 15 percent, the EMI is Rs 56,000.

If a borrower has to pay the increase in EMIs over the years, they will become difficult to manage without a sound financial plan. Hence, factor in rate increases when calculating your loan repayments.

Build a contingency fund

It is recommended that you have three to six months' salary in your cash reserve. This contingency buffer should be expanded in the event of an increase in outstanding debts, more dependents or greater expenditure .

Failing to build a contingency buffer before taking a home loan could prove to be difficult in the event of an unexpected expenditure.

Have protection plan in place

There are numerous home insurance plans targeted at home loan borrowers . They provide cover to a home loan in the event of any unforeseen event happening to the borrower . In such a situation, the family of the borrower will have the support of the insurance cover to pay for the outstanding home loan, without being burdened by monthly EMIs. Read the terms well before narrowing on a home loan insurance product.

A borrower must aim to be debt-free soon. In the event of a financial windfall , try to repay your outstanding debt towards the home loan. A home is a precious asset to which the family has an emotional attachment . Build a financial safety net so that your home purchase process is without glitches.

Money and the American election - Stabroek News

Within two days of its Initial Public Offering, the social network Facebook was worth more than US$100 billion – making it, at a stroke, more valuable than such iconic brands as online bookseller Amazon, banking giant Citigroup, and global fast-food empire McDonald’s. In other news, stock analysts speculated that Apple’s dominance of online music sales, smartphones and tablet computers, could make it the first company valued at a trillion dollars.

Meanwhile, the American economy struggles to recover jobs lost in the financial crisis. Surprisingly, there has been only a muted backlash against the cozy arrangements which hedge funds and private equity firms have with the US tax code, exploiting a loophole that allows them to report profits as “carried interest” and thus be taxed at 15 per cent (as capital gains) rather than the standard 35 per cent most Americans pay on their income. President Obama tried to highlight the resulting absurdities by citing the example of the billionaire Warren Buffett’s secretary bearing a tax burden that was, proportionally, double what her boss paid.  (Forbes subsequently estimated that the secretary earned a salary between $200-$500, 000 and so was not an ideal example of the American middle-class.)

The interaction between vast, lightly-taxed corporate wealth and American politics has become increasingly problematic, and not just for Americans. For one thing the rise of the internet has vastly expanded the impact of corporate decision-making, into countries with poor records on human rights and free expression. Rebecca MacKinnon, founder of the blogging network Global Voices, notes that “When citizens depend on online platforms like Google, Twitter, and Facebook … legislators and regulators in the world’s largest markets make decisions that ultimately shape global technical standards and business norms. Thus governments are exerting power over the freedoms and rights of people who did not vote for them, who do not live under their jurisdiction and have no meaningful way of holding them accountable.”

Control of American legislators and regulators now lies within the grasp of a handful of extremely wealthy corporations and individuals, few with agendas that clearly serve the public interest.  A case in point is the surge in use of the tax-exempt “Super Political Action Committee (PAC).”  Shielded by a Supreme Court decision that treats political donations as a form of free expression, Super PACs allow candidates to bypass former campaign finance restrictions with impunity, opening the floodgates to extravagant donations from wealthy citizens. The candidacy of Newt Gingrich, for example, was possible mainly because of the support of the Winning Our Future Super PAC financed by the Las Vegas casino magnate Sheldon Adelson and his wife Miriam, who donated $10 million. The money helped Gingrich remain in the Republican primaries long after he was a viable candidate.

With the general election looming, there is anxious speculation about the role of PACs funded by Charles and David Koch – reputedly worth $25 billion each – longtime backers of libertarian organizations. The Kochs have already lavished huge sums of money on the Tea Party movement and look set to increase their donations significantly in the forthcoming campaign. It may be worth recalling that Obama’s entire 2008 presidential campaign – which shattered all previous records – cost US$1 billion.  The funding mechanisms now available to both parties in the next campaign will likely dwarf this figure.

But concerns about the rise of well-funded right-wing groups in American politics miss the point. The whole system has been corrupted by money. US taxpayers have shouldered the burden of bailing out Wall Street and huge corporations like General Motors only to find themselves, effectively, sidelined in the political conversation. As for the citizens in other countries who must live with the consequences of decisions made at US companies like Facebook and Twitter, they have no say whatsoever.  Yet the US political system meanders along, tinkering with defunct campaign finance legislation, allowing the influx of ever larger sums of money into a process designed to produce leaders that will curb wasteful spending and mismanagement. This contradiction is central to much of what has gone wrong in US politics during the last two decades, and unless the root cause is confronted directly, there is little prospect of either political party delivering much hope or change in the next general election.

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