Home loan repayments are huge commitments that most families face. Sometimes, there is a huge difference in interest rate between what the borrower currently pays his bank and what another lender offers. In such a scenario, people consider either prepaying their loan or switching the lender. Switching to another lender offering better rates is called balance transfer.

Expenses involved

A balance transfer of the outstanding loan from one bank to another can result in savings of a few thousand rupees, month after month in your EMIs. Borrowers must exert due diligence before exploring the balance transfer option. The existing lender charges a penalty for prepayment and the new lender may seek processing fees. These expenses must be taken into account while weighing the benefits of a balance transfer. Some lenders may levy additional switching charges that must be taken into account as well.

When it works well for you

It makes sense to go ahead with a balance transfer if your net gain is more than one percent. This is after factoring in the prepayment penalty of two percent and loan processing charge of 0.5 to one percent. Since lower rates are applicable for a new borrower (rather than existing borrowers) shop for competitive rates and a good lender. After the switching exercise, you shouldn't get a rude jolt that the new lender has increased the rates. So find out if any rate hike is on the cards before switching.

Some tips to help you manage your home loan repayment better and plan finances for other needs too

A home loan is a longterm commitment for a borrower. You need to make regular repayments month after month for some 15 to 20 years. When a major chunk of the salary goes towards the loan repayment, other important expenses get overlooked. Planning finances becomes a major challenge. Striking a proper balance between debt repayment, investing for the future and meeting home expenses is critical.

Financial planning aims at meeting your long-term financial objectives. It includes asset allocation, exploring investments, tax planning, retirement planning and risk management. Financial planning first involves computation of your earnings, estimating your future needs to maintain your desired lifestyle and arriving at an investment plan to reach your objectives.

If you thought that your home loan was the only longterm commitment, it is not so. Children's education, marriage expenses, retirement savings, medical bills, unforeseen expenses and emergencies are all major expenses. You may also have other debts like personal loans, credit card bills and vehicle loans. Spending too much of your income and improper management of money, can lead you to a debt trap.

The tenure of any typical home loan is usually long. And owing to inflation and other pressures, a floating rate of interest is bound to go up as years pass by. So, your EMI due to the lender may shoot up, but your salary may not move up by the same fraction. Hence, when planning for repayments keep a considerable cushion for these increases in rates. Uncertainties abound. The health of the economy, inflation numbers, interest rates, your job stability and financial conditions are indeterminate elements. Repayments can become an arduous challenge for many borrowers if no cushion is provided.

The interest rates are showing signs of taming down. If the trend continues you can expect further reductions in rates. Borrowers must make as much down payment as they can, so that the burden of their EMIs will be minimal. Then, opt for floating rates, rather than fixing at the current relatively high levels.

If you were contemplating a vehicle loan or another personal loan, simply postpone to a later date. More debt means more financial obligations. For those already reeling under the burden of rate hikes, acquiring new debts can be an unwise move.

The key to successful retirement planning is to start off quite early and benefit from the power of compounding. Retirement planning acquires even more prominence because the inflation monster is waiting to eat into the money in your savings account. Increased life expectancy and escalating medical costs increase the need for a decent retirement savings.

If you are in a serious unmanageable debt, work out plans to sail out of debt first. This may include paying off high interest loans, paying credit card bills on time and cutting down on a lavish lifestyle. Investments in debt instruments, equity vehicles, balanced funds, real estate, and insurance must be made with due diligence. Adopt a disciplined approach and refrain from the temptation to splurge till your debts are paid off.

Currently, the economy is going through a slowdown across the board. Due to the slowdown, the prices of property went through a correction. Many experts believe this is the right time to invest in property. Interest rates on home loans have also come down in the last few weeks after the Reserve Bank of India (RBI) cut the policy rates (repo rate, reverse repo rate and cash reserve ratio) drastically during the last four months.

Analysis of condition of economy

Currently, the economic conditions are not good across the world. Many developed countries are in a much worse situation as they have a dip in their real GDP during the last couple of quarters. For example, US, UK, Germany and Japan are already in recession. India is in a better condition.

In India, the economic growth rate has come down from nine percent last year to less than seven percent this year. Analysts and experts are predicting that the bottom of recession has not yet been reached and we may see a further dip in this growth number in the months to come.

Analysis of home loan rates

Home loan interest rates peaked during the middle of last year. They started coming down after the RBI cut the policy rates drastically in the last four months.

Here are some reasons why home loan interest rates are expected to come down in the short to medium term:

Some banks have not yet passed on the full benefits of previous rate cuts to their borrowers. They are taking a cautious approach towards reducing the loan rates and fresh loan disbursals.
The inflation rate has already come under control due to lower commodity prices in the global market The government will pressurise banks to reduce the interest rates on home loans

• For those borrowing now

Looking at the current scenario and expectations of the near term, it is clear that home loan interest rates are not going to go up. It will have a tendency to go down in the near future. Therefore, it is recommended to go in for a floating interest rate home loan scheme. The banks have not reduced rates substantially on fixed interest rate home loan products. Thus, fixed interest home loans come at significantly higher interest rates than floating interest rate loans.

However, it is good to look for banks which provide the option to switch from floating rate loans to fixed rate loans by charging a small fee. Other factors that borrowers should look at include pre-closure or pre-payment penalty, processing fee etc.

• For those who have already borrowed

Some banks have not yet revised the interest rates downwards for existing borrowers in some cases. Such borrowers can consider a switch option. However, they should weigh the cost of the switchover with respect to interest rate differential before making such a decision. The cost of the switch includes pre-closure penalty, processing fee of new loan, registration charges etc.

Many banks provide software that calculates the exact difference in terms of total cost between the old loan and new loan. You can analyse the comparison and look for loans with faster recovery of switchover costs by way of savings from the interest component of EMIs payable under the new loan.

GAUTAM, a 32-year-old IT professional, ultimately decided to own a flat, which had been his and his wife’s dream from the day they got married. Very meticulously, he started exploring builder projects to locate a flat which fits his budget and meets his wife’s expectations. From the numerous projects visited, Gautam shortlisted two flats — one in Sparkling Heights and the other in City View. The flat in Sparkling Heights was ready to move in but the flat in City View was under construction and was available on construction-linked payment option.

Gautam was in a dilemma as to which option would be ideal for him. If he opted for the ready to move in flat, he would have had to start EMI (payment of interest and principal together) immediately, which he was not really financially prepared for. The advantage of buying a flat in City View was proximity to his office and kids’ school. He started showing interest in the under-construction project. This is where the concept of pre EMI (PEMI) came in for Gautam.

His friend Vikas, a senior credit manager with a housing finance company, clarified the PEMI concept in detail. In CLP, he would get the loan disbursement in tranches out of his sanctioned loan and the EMIs of the loan would not commence till the full disbursement of the loan happens. Gautam would have to keep paying the interest only for the intervening period for which the loan was partly disbursed.

Giving his expert comments on the payment schedule for flat in City View, he introduced Gautam to the pros and cons of paying PEMIs for the loan. The cost of a flat in City View was Rs 40 lakh and Vikash calculated that around Rs 34 lakh loan (85% of the property value) would be sanctioned by the housing finance company. Gautam would have to pay the balance amount of Rs 6 lakh from his savings.

If he availed the loan on CLP, he would have to make PEMI payments, which is only the interest on the amount disbursed. The disbursement is made by the financier according to the progress of the project. Gautam, clearly understood one major point — i.e. since the builder will be paid as per the work progress, there will be a constant pressure on the builder to deliver on time. He knew that as an individual he would have little control over his dream project.

ADVANTAGES OF Pre EMIS:

Gautam realised that PEMIs allows him the time to finance a property without losing out on dream flat he had selected for his family.

• Disbursement of sanctioned loan based over a period of time has an in-built advantage as payment is usually made based on progress of work. Gautam is not bound to pay unless the stage as per agreed terms is completed. In turn, the builder will try to give timely possession of the flat.

• Gautam also realised that he can at least see what kind of material is being used by the builder when he visits the project every fortnight

• Another advantage that Gautam discovered was that only interest was required to be paid, that too on the disbursed amount. And as per his calculation, by the time the whole EMI is payable he would get at least two increments (if not one promotion, which however he is not sure of at this time of financial meltdown) making his financial state a little comfortable.

DISADVANTAGES OF Pre EMIS:

Vikas also pointed out that PEMI option has following disadvantages which Gautam must be aware of:

• As per the calculation, Gautam would have to pay interest for 24 months and the total payment would be of around Rs 3.60 lakh, which would be additional interest payment (assuming rate of interest is 10% and quarterly disbursement of loan as per construction progress) since the EMIs will commence only when full disbursement takes place in two years.

• It also means that Gautam would have to pay interest along with his rent, which is currently Rs 15,000 pm and will increase at least 5% pa, in the two years. So his monthly outgo will increase during these two years

• Gautam knew the Income tax-implication as well — until he was given possession he couldn’t have claimed tax rebate under various section of I-T Act, 1961; neither against payment of interest nor against principal which he would only start paying once EMIs begin.

• The CLP-based payment plan monitors the progress of construction of project but the same is not true for the cases where the payment is time linked and not construction linked. In such cases, the builder raises the demand on the basis of due dates as specified in the payment plan, irrespective of stage of construction of the project. Vikas cautioned Gautam about such project for obvious reasons.

The markets follow a cyclic pattern. Around eight months ago, it was a seller's market. Real estate prices had pinnacled and were unaffordable to many. Today, it is a buyer's market. Developers are wooing customers with bargain deals and innovative offers. Is it time to clinch a great deal and own that dream house?

Investors dread the inflation monster that erodes hard-earned money. Buying a property is a wise decision for those who are prepared to stay invested for a long term. Real estate has yielded a compounded return of over 20 percent per annum over a long term. In cases even more. Perhaps that's the reason why it is considered an effective tool to beat inflation.

People paying a huge rent month after month must contemplate buying their own home. By paying EMIs to the lender instead of rent, you can own the house in the next 20 years. Interest rates are sliding to single digits making borrowing a less painful experience.

Investment in property calls for tremendous caution. The property's title needs thorough investigation. Location of the property is another vital issue. You can buy a larger house for the same money on the outskirts of the city, than in the heart of the city. However, a location far away from city may lack in the amenities you need. A property located in a prime residential area appreciates faster and has greater resale value. Factor in condition of the building, parking, neighborhood, safety and water quality.

Bargain deals from developers are the best bait that prospective home buyers must consider. Unheard of deals and offers are on the platter.

pulled up the cost of construction. Interest rates on home loans had crossed double digits and land prices had sky rocketed. The mood in the realty sector is upbeat. People who had procrastinated on their decision to invest in property are reconsidering their decision. With ever-increasing population and ever mounting demand for housing and office space, property values are set to appreciate.

Bear in mind a long term investment perspective. Add realty to your portfolio and beat the inflation monster.

Some conditions usually applicable to avail a loan to buy a plot of land

A loan to buy a site is available if you want to purchase a plot of land and construct a house on it later. Usually, the bank insists that the site be purchased from a recognised authority like a development authority such as the Bangalore Development Authority, from a society or from a recognised developer.

In addition to the normal documentation, some additional documents are required to avail a land loan. These include:

• Original documents of ownership of land
• No encumbrance certificate from the registrar's office certifying that the land is not already mortgaged
• Layout drawing (approved by the city development authority) of the location where the land is, giving details of the precise location of the site and its surrounding areas
• NOC from the society for sale and transfer of land Latest revenue receipt confirming payment of land dues to the government and tax receipt for tax paid by the owner of the land

Also, most banks finance the purchase of a site only if it is in a location within the limits of the municipal corporation.

Most banks have a minimum and maximum loan amount that they lend for the purchase of a site. This differs from one bank to another. Most banks specify a limit on the loan-to-value ratio that they maintain. It could vary from 60 to 70 percent of the registered value.

The loan amount offered has no relation to the market value of the property. Any premium paid by the purchaser has to be out of your own resources. Some banks charge a higher rate of interest on loans for purchase of a site. The rate of interest on these loans may be higher by about 25-50 basis points.

The disbursement of the loan amount is always in favour of the seller of the site unless the purchaser has already paid the amount to purchase the land. Typically, the charges applicable to normal housing loans are applicable to land loans as well. Further, the age norms for a customer to be eligible for a land loan and the eligibility calculations for computing loan amount are the same as that of a regular home loan. Most banks also have a minimum income criterion. The repayment for the loan is through equated monthly instalments (EMIs) just like other home loans .However, the tenure of these loans is usually lower – up to 10 years.

The interest paid on the money borrowed for the purchase of land is not eligible for income tax deductions. However, once the borrower converts the land loan into a housing loan to finance the construction of the house, he can avail the tax benefits available under the Income Tax Act.

The security of the loan is an equitable mortgage of the site. It is done by depositing the original title deeds of the site with the lender. The lender may also insist on additional collateral security depending on the type of land.

Financing purchase of sites is a bit risky because of difficulty in documentation. Further, there is risk of security of the property. This is compounded by the fact that there may be delay in commencement of construction. One necessary requirement is that the land should be developed and clearly demarcated, and should have been approved for residential buildings

The earlier you buy property in your earning years, the better it is for you financially. Here are the list of questions you should answer first to get the best deal

The high economic growth in the past five years has brought about a big change in the life of the average person. Many young people are joining work early and earning high salaries. Many of them are either single or newly-married with lower financial commitments. There is higher disposable income in their hands. Home loans are relatively easy to get and mortgage rates are getting cheaper. So, the journey of wealth creation now starts in early 20s.

Property as an asset

Easy availability of home loans, declining loan rates and tax concessions imply that with the right amount of planning you can easily buy that dream home early in life. When you analyse it thoroughly, the first house purchase is not just to fulfill your dreams but also to provide for a secure place to live in through the golden years of your life - after retirement.

Due to the improved living conditions and access to better medical facilities, life expectancy is increasing. This has led to a situation where you will be spending approximately the same number of years in retirement that you would have spent in your active working life. Having a house where you can stay comfortably in then becomes a necessity rather than a choice.

Arriving at the budget

Starting early provides you with the ability to finish off the first housing loan while you are in your early 40s. This gives you the added luxury of buying a second house for investment purposes. However, to get all this right requires proper planning. Hence, a lot of thought and planning has to go into the buying process. It requires long-term financial planning.

The right financial planning practice starts with asking a few questions. These questions throw up many surprising answers and help in understanding your needs better. For example, do you have enough cash resources to cover expenses for at least the next two months? It seems like a simple question, but is a very relevant one. It helps you provide for contingencies before you venture out to invest or take a housing loan.

Some questions you have answer while buying a house:

What type of house do you need?

The kind of house you need will be based on a host of factors like proximity to schools, offices, shopping centers and medical facilities. Making a list of all the items you need in your house in the order of priority. This helps your selection process because it weeds out choices that do not find favour.

How will you fund the down payment?

Even though banks are funding a substantial part of your housing costs, you will have to arrange for your contribution upfront from your personal savings. This will be no less than 15-20 percent of the value of the house. You also need to cover at least a part of the closing costs. So, the first step towards owing your own house is saving up for down payment.

How big a loan should you avail?

If you are buying a house with borrowed funds your home specifications will depend upon how much you can borrow and how much you can raise as down payment. The mortgage lender will work out your loan eligibility in both scenarios. The quantum of loan can be either linked to income or to down payment. It pays to be prudent and limit your EMIs to no more than 35-40 percent of your net take-home pay if you do not have other loans.

What should be the loan tenure?

Another major decision you will have to make will be the length of loan tenure. Generally, the longer the loan the costlier it becomes. A five-year difference in the loan tenure could set you back by a couple of lakhs. So, the general philosophy should be to pay back the loan as early as possible. If you have an early start, you will be in a position to settle your first loan and be eligible for another housing loan for your second house.

Insurance and taxes

These are expenses that are not factored in the calculations before buying the house. These increase the cost of ownership. For any home loan borrower, it makes sense to get insurance so that in the unfortunate event of his untimely death the loan can be settled with the insurance. Further, a home insurance to cover your home and its contents will stand you in good stead.

Asking the right questions to yourself before buying a house will help you get the maximum value for your money

Some factors you need to consider to arrive at the ideal home loan tenure:

Loan tenure is the duration of the loan. In case of housing loans, generally, the tenure is long - may vary anywhere between five and 20 years. Most borrowers prefer to go in for a longer tenure rather than a short one. The repayment through EMIs depends on the tenure of the loan and amount. Longer the loan tenure, lower the EMI. Shorter the loan tenure, higher the EMI. Of course, going by the same logic, for shorter loan tenures, the interest amount paid is also less as against the longer tenure loans, where the interest amount increases.

Present income

A number of factors influence the determination of loan tenures. The first and foremost one is the income of the borrower - i.e. the disposable income of the borrower. The reason is that it is from this part of the income that he would be repaying the loan instalments. So, if the net disposable income of the borrower is low, it is advisable to go in for a longer tenure loan rather than opting for a short tenure one. This way, the EMI portion is reduced. The loan amount is spread over a longer period of time. The immediate burden on the borrower is low. This is despite the fact that the borrower is required to pay interest for the extended period of borrowing.

Future income

Another important element to be considered is the future income of the borrower. In case the borrower is expecting an increase or reduction in the income levels in future, he has to decide on the tenure accordingly. For example, in case a person is to retire in another five years' time, he may look at a maximum of a 5-year tenure, and may not like to stretch it beyond his retirement age. Similarly, a 30-year-old can think of having a longer tenure loan stretching up to 10-20 years, because gradually his income would also rise. In the initial years of employment, the income levels are low. The income increases over the years (so does the expenditures). So, one may opt for a longer duration loan and reduce the present burden.

Interest rate

Then comes the element of interest. Generally, the short tenure loans attract lower rates of interest as compared to the long tenure loans. This is because a bank can estimate interest rate movements in the near term more accurately than over a long term. So, in case you have adequate liquidity and resources to repay the loan amount, opt for shorter duration loans vis-avis the longer duration ones and thus take advantage of the lower interest rates.

Loan tenure

Yet another factor influencing the loan tenure is the amount of loan. The amount borrowed determines whether you should opt for a longer tenure or shorter one. In case the amount borrowed is huge, go in for a longer tenure loan.

Objective – investment or own use

Another factor that influences the loan tenure is the objective of the loan. Whether you intend to take the loan to purchase a property for your own use or as an investment option is a key question. Generally, if you are borrowing for the purpose of buying as an investment, go for a shorter duration loan to avoid the exit charges payable in case of early termination of the loan and to maintain liquidity of capital.

All these factors are interlinked and need to be analysed in totality to arrive at the ideal loan tenure.

Here are some home loan terms it helps knowing

CREDIT APPRAISAL

This is a process by which a lender evaluates the creditworthiness of the loan applicant. It involves assessing the borrower's past repayment history, establishing the sustainability of his current income and evaluating his capacity to repay. The applicant will be sanctioned a loan only after taking into account his savings, income, age, qualifications, period of employment and other outstanding debts.


EMI

EMI (equated monthly installment) is an unequal combination of two components - principal and interest. This is the amount of money the borrower owes the lender every month, through the tenure of the loan.


MARGIN MONEY

Also called down payment, margin money is typically around 10-15 percent of your loan amount. The bank does not disburse the entire cost of the property when you seek a home loan. It lends only around 85-90 percent of the project cost. The borrower is expected to bring in the remaining money. This is referred to as down payment or margin money.


HOME IMPROVEMENT LOAN

Some people may need money to repair, renovate, remodel or extend their home. Banks offer home improvement loans that you can use for making structural improvements, external and internal repairs, flooring, painting, improving plumbing, electrical work etc.


JOINT LOAN

A loan applicant can apply jointly for a loan with his spouse or parents. This way he can club the incomes. This increases his loan eligibility.


HOUSEHOLDER’S INSURANCE

This policy offers insurance for household belongings against fire, malicious damage, burglary and natural disasters like flood and earthquake. The householder's insurance policy is a comprehensive package that protects the house and its various contents against a variety of risks. It is a single policy that takes care of a number of contingencies.

Some tips to help you cope with higher EMIs without the risk of defaulting

Many borrowers, especially those who took a home loan when the rates were very low, are feeling the pinch of the higher rates prevailing now.

To understand the impact of the increase in rates on your Equated Monthly Instalments (EMI) outflow, consider this example. Five years ago, interest rates were at an unbelievable low of around seven percent. Suppose a borrower, takes a loan of Rs 50 lakhs for a tenure of 20 years, his EMI outflow comes to around Rs 39,700 at seven percent. For the same loan amount and tenure, consider the current rate of 13 percent. The EMI outflow comes to around Rs 58,500. If a borrower's income level has not risen up by this amount, then managing loan repayments becomes a tough task.

Here are a few tips that will help you cope with increase in interest rates:

• If you have money in instruments like fixed deposits or some surplus cash, consider prepaying partially. This way the increase in EMI outflow due to rate increase can be nullified.

• Consider paying off high interest debts first. Credit card penalties are huge. If your finances are simply unmanageable avoid using the credit card and transact in cash only.

• Rework on your budget if your incomes have stagnated and interest rates are shooting upwards. Make lifestyle changes and avoid high expenses.

• Consider refinancing if another lender offers a much lower rate. Some lenders who offer lower rates only to new customers and not to the existing ones must be avoided.

• Increasing the loan tenure brings down the EMI due every month to affordable levels. However, you pay more to the lender in the form of interest on the loan.

• Keep a tab on your monthly expenses, long-term financial commitments and other debts. Continue setting aside a small portion of your income towards a contingency fund.

• Do not indulge in debts.

Borrowers hold high emotional bonding to their homes. Defaulting is their worst nightmare. If you feel making EMI repayments an arduous task, contact your lender. You can try to workout a suitable repayment option and avoid defaulting.

Ahost of projects and willing lenders have made the dream of owning a house a reality for many. Apartments are equipped with unimaginable amenities and luxuries. Banks vie with one another to entice more borrowers and meet targets. The much-awaited moment that both the borrower and builder look forward to is - disbursement. But did you know that disbursement comes in different variants? Let's explore.

A home loan process is a lengthy one that starts off with filling up an application form. After a credit appraisal, scrutiny of your papers, legal formalities, technical check, valuation and collecting fees and margin money, the lender finally disburses the loan. Disbursement is payment of the loan amount by the lender to the borrower to meet his expenses.

Consider the case where the lender decides to disburse the entire amount as in the case of a fully constructed house, with no major work pending. This is called full disbursement. A loan is fully disbursed by the lender only when the builder is a reputed and respected one. Only in rare situations, will a lender fully disburse the loan amount, for a project that is in its initial stages. Otherwise, only for a ready-to-occupy house, the bank disburses the entire loan amount.

Loan disbursement largely depends on the phase of completion of a project. Be it a small house or a large apartment complex, the stages of construction are similar. After planning, drawings and approval, work on the ground commences with laying foundation walls. Then walls are raised. Roofing, plastering, woodwork, painting, electrical and plumbing jobs ensue. When a bank chooses to release the loan in various stages, it is referred to as partial disbursement. Depending on the pace and the level of progress made in the construction, money is disbursed by the lender.

For instance, when the foundation work is complete, the bank may choose to disburse 15 percent of the loan amount. The next release of say 20 percent may happen when the walls are erected. Banks make a partial disbursement for most borrowers who want to buy a house that is yet to be constructed or is under construction.

Advance disbursement is when the lender agrees to release the full amount for a house that is still under construction. This happens if the builder is a reputed one or the lender is convinced that the developer will complete the project on time. The lender can also make an advance disbursement when the borrower requests for it.

How do these variants impact the borrower? Would partial, full or advance disbursement make a difference to the borrower?

There is a larger element of risk involved in case of advance disbursements. The borrower is tied down financially to an asset that does not exist. It is very important for the borrower to read the agreement word by word before signing the deal. Most clauses are heavily tilted towards the lender. This leaves the borrower exposed to consume all sorts of risks. Starting from interest rate hikes to almost every risk is passed on to the borrower. This calls for adequate caution on the part of the borrower now rather than repenting later.

In case of partial disbursement, pre-EMI is a lower burden since it is computed on the amount disbursed at each stage rather than the full loan amount. In case of advance disbursements the EMI clock starts ticking for the entire loan amount, even before the construction is complete.

The single-most expensive purchase that most people indulge in, usually once a lifetime, is buying a house. Homeowners invest their life's savings in their home. Ever wondered what happens if a huge fire destroyed your home or an earthquake ravaged it? It's hard to imagine your hard-earned money go up in smoke. Is there any way to ensure protection of your roof and its contents? Enter property insurance.

Property insurance provides protection against most risks to property from threats such as fire, burglary and earthquake. Open perils cover all the causes of loss not specifically excluded in the policy. In other words, it is insurance coverage for all risks other than those that the policy explicitly excludes.

Common exclusions on open peril policies include damage resulting from floods, nuclear incidents and war. Named perils require the actual cause of loss to be listed in the policy of insurance to be provided. In other words, it is insurance policy that covers only losses which result from causes specifically listed in the policy. It includes damage caused by fire, lightning, or theft.

When taking a home loan, some banks offer free property insurance. However, property insurance is not a prerequisite for applying for a home loan. Property insurance isn't merely about protecting your investment in your home. It also covers your valuable personal belongings, both inside and outside your home. Property insurance will reimburse you for losses if your home or personal belongings are damaged by fire, your belongings are stolen or some catastrophe strikes.

Read the fine prints in the policy. Do not compromise on crucial elements to save a few rupees and do not pay for covers you do not require.

The householder's insurance policy is designed to cover risks and contingencies faced by householders under a single package policy. It provides protection for property and interests, as well as legal liability of the insured and his family members who permanently reside with him. Instead of taking different policies you can opt for multiple sections or covers of your choice under one policy.

Home loan insurance plans provide cover to your home loan in the event of any unforeseen calamity happening in your life. If the breadwinner is unable to earn, what happens to his EMI repayments? With home loan insurance, your family will have the support of the insurance cover to pay for the outstanding home loan, without being burdened by the loan's EMIs.

Home loan insurance provides cover on housing loans. Let's assume the breadwinner dies during the term of the policy. The cover would provide a lump sum amount equal to the outstanding amount on the home loan. As the outstanding amount on the loan decreases over time, so does the cover under the policy.