Jun
26
First Time Home Buyer? Hip, Hip Hooray for Thda!
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Kristin Abouelata - Home Loans
"In order to promote the production of more affordable new housing units for very low, low and moderate income individuals and families in the state, to promote the preservation and rehabilitation of existing housing units for such persons, and to bring greater stability to the residential construction industry and related industries so as to assure a steady flow of production of new housing units…"
Many times, people have heard of THDA and are confused, thinking that THDA is a certain loan type. In fact, it’s lending agency. All THDA mortgages must be insured by private mortgage insurance, FHA, VA or RECD And as these loans are intended for low to moderate income families or individuals, there is a income limit and acquisition cost limit. Also, you must be a first time homebuyer unless your home is in a targeted area.
Why is THDA so fantastic for a first time homebuyer? Well, it comes down to money. THDA offers a below market rate and will allow up to 100% financing. Have you been reading the papers lately? It’s not so easy to find 100% financing these days. Unless, that is, you’re a first time homebuyer. It also has programs that allow for down payment assistance via grants from certain approved agencies (if your loan type requires a down payment). If you have satisfactory credit and the home you wish to buy meets THDA’s standards, then you’re in business.
All THDA mortgages are 30 year fixed rate loans, so you needn’t worry about finding yourself with an ARM loan (adjustable rate mortgage) and a new payment you can’t afford in 3 years. And THDA allows lenders to only charge customers a standard 1% origination and .25% discount fee. It also closely monitors fees associated with the loan. THDA really looks out for the best interest of the first time homebuyer. If you are eligible for a THDA loan, you can feel pretty certain that an unscrupulous lender can’t take advantage of you because THDA won’t let them. For so many people, buying a home is pretty intimidating. THDA takes away the uncertainties a buyer faces with its guidelines and lending practices.
If you do apply for a THDA loan, be prepared to document your credit worthiness. THDA loans require slightly more documentation than your average loans because of the uniqueness of its product. In order to offer more, THDA asks for more – ensuring you qualify for its pretty awesome program. Sounds like a fair trade, if you ask me.
What are the disadvantages of a THDA loan? Not many. They do have a federal recapture tax if you sell your home within the first nine years of owning it. But it sounds scarier than it really is. I’ve heard that only about 1% of THDA customers actually pay this tax. That’s because a bunch of really great things have to happen to you in order for it to actually apply to you. And if those great things happen to you, paying the recapture tax won’t matter much to you anyway. I’ve been in the business for 16 years and have only heard of one person actually having to pay one. He graduated from medical school and his income when through the roof. His property was sold above market value than for the area because it was adjacent to some property that a huge retailer wanted to purchase. Again, good things have to happen to pay the recapture tax. So, you shouldn’t be afraid of it.
More people need to hear about and take advantage of the THDA loan programs. It’s such a great product and really helps the community and the housing industry. If you’re a first time homebuyer or think you’re in a targeted area, make sure you ask about THDA to see if you would qualify for a loan. You won’t regret it!
"In order to promote the production of more affordable new housing units for very low, low and moderate income individuals and families in the state, to promote the preservation and rehabilitation of existing housing units for such persons, and to bring greater stability to the residential construction industry and related industries so as to assure a steady flow of production of new housing units…"
Many times, people have heard of THDA and are confused, thinking that THDA is a certain loan type. In fact, it’s lending agency. All THDA mortgages must be insured by private mortgage insurance, FHA, VA or RECD And as these loans are intended for low to moderate income families or individuals, there is a income limit and acquisition cost limit. Also, you must be a first time homebuyer unless your home is in a targeted area.
Why is THDA so fantastic for a first time homebuyer? Well, it comes down to money. THDA offers a below market rate and will allow up to 100% financing. Have you been reading the papers lately? It’s not so easy to find 100% financing these days. Unless, that is, you’re a first time homebuyer. It also has programs that allow for down payment assistance via grants from certain approved agencies (if your loan type requires a down payment). If you have satisfactory credit and the home you wish to buy meets THDA’s standards, then you’re in business.
All THDA mortgages are 30 year fixed rate loans, so you needn’t worry about finding yourself with an ARM loan (adjustable rate mortgage) and a new payment you can’t afford in 3 years. And THDA allows lenders to only charge customers a standard 1% origination and .25% discount fee. It also closely monitors fees associated with the loan. THDA really looks out for the best interest of the first time homebuyer. If you are eligible for a THDA loan, you can feel pretty certain that an unscrupulous lender can’t take advantage of you because THDA won’t let them. For so many people, buying a home is pretty intimidating. THDA takes away the uncertainties a buyer faces with its guidelines and lending practices.
If you do apply for a THDA loan, be prepared to document your credit worthiness. THDA loans require slightly more documentation than your average loans because of the uniqueness of its product. In order to offer more, THDA asks for more – ensuring you qualify for its pretty awesome program. Sounds like a fair trade, if you ask me.
What are the disadvantages of a THDA loan? Not many. They do have a federal recapture tax if you sell your home within the first nine years of owning it. But it sounds scarier than it really is. I’ve heard that only about 1% of THDA customers actually pay this tax. That’s because a bunch of really great things have to happen to you in order for it to actually apply to you. And if those great things happen to you, paying the recapture tax won’t matter much to you anyway. I’ve been in the business for 16 years and have only heard of one person actually having to pay one. He graduated from medical school and his income when through the roof. His property was sold above market value than for the area because it was adjacent to some property that a huge retailer wanted to purchase. Again, good things have to happen to pay the recapture tax. So, you shouldn’t be afraid of it.
More people need to hear about and take advantage of the THDA loan programs. It’s such a great product and really helps the community and the housing industry. If you’re a first time homebuyer or think you’re in a targeted area, make sure you ask about THDA to see if you would qualify for a loan. You won’t regret it!
Jun
21
Credit Card Processing: Why Your Low Rate May be Costing a Fortune
Filed Under Home Loans | Comments Off
Jonathan Hewitt
The most diligent business people will do their homework when shopping for a merchant account. They’ll get multiple processing quotes from different providers and negotiate the lowest rates to get what seems to be the least expensive processing solution. Here’s the kicker, merchant accounts with very low discount rates are not always less expensive than accounts with higher rates. If fact, more often than not - they’re substantially more expensive. In this article, I’ll explain how merchant account rates work and I’ll cover the vital question that you need to ask providers in order to get the least expensive rates for your business.
The merchant discount rate that businesses pay to process credit cards is based on VISA and MasterCard’s interchange fees. Basically, interchange rates are the wholesale processing rates paid to the issuing bank of a customer’s credit card. Understanding interchange is crucial to getting the best merchant account rate. If you’re unfamiliar with interchange fees, take a moment after reading this article to learn about them. It really is money-saving knowledge.
Merchant account rates are structured one of two ways. The first and most common is a tiered rate structure, and the second is something called an interchange-plus pricing structure. Since tiered pricing is most popular and most pertinent to this article, that’s the one I’ll be addressing. However, interchange-plus pricing is the best and most transparent form of pricing. You can read more about interchange-plus pricing by following the link in the resource box at the end of this article.
Tiered merchants account pricing functions by taking the hundreds of VISA and MasterCard interchange fees and categorizing them into two or three categories. The first rate category is called the qualified rate, and the second and third categories called mid-qualified and non-qualified represent surcharges that are applied to the qualified rate. For example, a typical three-tiered merchant account pricing schedule would look something like this:
Qualified Rate: 1.79%
Mid-Qualified Surcharge: 0.25%
Non-Qualified Surcharge: 0.60%
Understanding how hundreds of interchange fees are packed into these three categories is the key to recognizing the best processing rates. Industry professionals refer to each tier of a merchant account as a “bucket,” and payment processor can choose which bucket an interchange rate will qualify to.
Simply put, merchant account providers have the ability to control which fee category interchange rates will be charged to. They can conceivably offer a merchant account quote with a qualified discount rate of 1.50% and still make a profit by routing the majority of charges to the mid and non-qualified rate buckets. Rate as low as this are very appealing at first, but once it becomes apparent how interchange fees are being routed, they’re worthless because they’re virtually unattainable.
This tactic is referred to as “inconsistent buckets.” Inconsistent buckets make it possible for merchant account providers to make rates appear a lot better than they actually are. By quoting an unreasonably low qualified rate and then routing the vast majority of interchange fees to the mid and non-qualified surcharge buckets, shifty providers can win business over honest providers that are actually offering a better merchant account.
In order to find the best merchant account rate, you need to ask a provider how they will be routing interchange fees. How interchange fees are applied is more important than the rates and fees you’re quoted. A low rate is worthless if very few of your transactions will ever qualify to it.
If you’re already processing credit cards, now is a good time to call your provider and ask them to explain how they’re routing interchange fees on your account. You may be surprised at the answer. If you’re in the market for a new merchant account, don’t be blinded by numbers. Make sure to ask each provider that you receive a quote from how they’ll be qualifying the different interchange fees. Don’t pick the quote with the lowest rate - pick the quote with the lowest rate that will apply to the majority of your transactions.
The most diligent business people will do their homework when shopping for a merchant account. They’ll get multiple processing quotes from different providers and negotiate the lowest rates to get what seems to be the least expensive processing solution. Here’s the kicker, merchant accounts with very low discount rates are not always less expensive than accounts with higher rates. If fact, more often than not - they’re substantially more expensive. In this article, I’ll explain how merchant account rates work and I’ll cover the vital question that you need to ask providers in order to get the least expensive rates for your business.
The merchant discount rate that businesses pay to process credit cards is based on VISA and MasterCard’s interchange fees. Basically, interchange rates are the wholesale processing rates paid to the issuing bank of a customer’s credit card. Understanding interchange is crucial to getting the best merchant account rate. If you’re unfamiliar with interchange fees, take a moment after reading this article to learn about them. It really is money-saving knowledge.
Merchant account rates are structured one of two ways. The first and most common is a tiered rate structure, and the second is something called an interchange-plus pricing structure. Since tiered pricing is most popular and most pertinent to this article, that’s the one I’ll be addressing. However, interchange-plus pricing is the best and most transparent form of pricing. You can read more about interchange-plus pricing by following the link in the resource box at the end of this article.
Tiered merchants account pricing functions by taking the hundreds of VISA and MasterCard interchange fees and categorizing them into two or three categories. The first rate category is called the qualified rate, and the second and third categories called mid-qualified and non-qualified represent surcharges that are applied to the qualified rate. For example, a typical three-tiered merchant account pricing schedule would look something like this:
Qualified Rate: 1.79%
Mid-Qualified Surcharge: 0.25%
Non-Qualified Surcharge: 0.60%
Understanding how hundreds of interchange fees are packed into these three categories is the key to recognizing the best processing rates. Industry professionals refer to each tier of a merchant account as a “bucket,” and payment processor can choose which bucket an interchange rate will qualify to.
Simply put, merchant account providers have the ability to control which fee category interchange rates will be charged to. They can conceivably offer a merchant account quote with a qualified discount rate of 1.50% and still make a profit by routing the majority of charges to the mid and non-qualified rate buckets. Rate as low as this are very appealing at first, but once it becomes apparent how interchange fees are being routed, they’re worthless because they’re virtually unattainable.
This tactic is referred to as “inconsistent buckets.” Inconsistent buckets make it possible for merchant account providers to make rates appear a lot better than they actually are. By quoting an unreasonably low qualified rate and then routing the vast majority of interchange fees to the mid and non-qualified surcharge buckets, shifty providers can win business over honest providers that are actually offering a better merchant account.
In order to find the best merchant account rate, you need to ask a provider how they will be routing interchange fees. How interchange fees are applied is more important than the rates and fees you’re quoted. A low rate is worthless if very few of your transactions will ever qualify to it.
If you’re already processing credit cards, now is a good time to call your provider and ask them to explain how they’re routing interchange fees on your account. You may be surprised at the answer. If you’re in the market for a new merchant account, don’t be blinded by numbers. Make sure to ask each provider that you receive a quote from how they’ll be qualifying the different interchange fees. Don’t pick the quote with the lowest rate - pick the quote with the lowest rate that will apply to the majority of your transactions.
Jun
20
How Does a Fed Cut Affect Home Mortgage Rates?
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Kristin Abouelata - Home Loans
You hear quite a bit lately that “the Fed is cutting the interest rate.” Maybe you’ve been considering a refinance, and you’re waiting to move forward till the Fed takes action again. But be smart about waiting and watching. A Fed cut doesn’t directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you’ve been waiting for.
Who is the Fed? Well, it’s really the Federal Reserve. And when the Fed cuts rates, it usually cuts the Fed Funds Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed Funds Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that’s great. But what does that really mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds’ rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest and your CD (certificate of deposit) won’t be at such a great rate. So, it’s not all good.
Why aren’t mortgages directly affected? Because mortgage rates are typically longer term rates and are influenced by buyers and sellers in the bond market. Daily movements in the bond market cause mortgage rates to change. That’s why you might get a quote from a loan officer on Tuesday, and on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is good for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes, “…a liquid real estate market is beneficial for the mortgage market and that keeps rates competitive.” So, when the Fed lowers rates, indirectly it can help mortgage rates, but there is no direct correlation.
Another misconception is that mortgage rate changes occur in direct relation to when a Fed rate cut happens. In actuality, most mortgage rate changes, positive or negative, occur regardless of whether the Fed is actually meeting. That’s because the mortgage market anticipates what the Fed is going to do.
A good loan officer should have their finger on the pulse of the market, but again it’s a gamble. Remember to have a target interest rate in mind if you want to lock a loan but are watching the market. Trying to lock an interest rate on the day the mortgage rates have reached their lowest point in a year is like trying to get a royal flush in poker. It happens, but it’s not a realistic goal. It just means you were lucky. Just stick to your home financing goals and consider the big picture, and you’ll be fine.
You hear quite a bit lately that “the Fed is cutting the interest rate.” Maybe you’ve been considering a refinance, and you’re waiting to move forward till the Fed takes action again. But be smart about waiting and watching. A Fed cut doesn’t directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you’ve been waiting for.
Who is the Fed? Well, it’s really the Federal Reserve. And when the Fed cuts rates, it usually cuts the Fed Funds Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed Funds Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that’s great. But what does that really mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds’ rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest and your CD (certificate of deposit) won’t be at such a great rate. So, it’s not all good.
Why aren’t mortgages directly affected? Because mortgage rates are typically longer term rates and are influenced by buyers and sellers in the bond market. Daily movements in the bond market cause mortgage rates to change. That’s why you might get a quote from a loan officer on Tuesday, and on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is good for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes, “…a liquid real estate market is beneficial for the mortgage market and that keeps rates competitive.” So, when the Fed lowers rates, indirectly it can help mortgage rates, but there is no direct correlation.
Another misconception is that mortgage rate changes occur in direct relation to when a Fed rate cut happens. In actuality, most mortgage rate changes, positive or negative, occur regardless of whether the Fed is actually meeting. That’s because the mortgage market anticipates what the Fed is going to do.
A good loan officer should have their finger on the pulse of the market, but again it’s a gamble. Remember to have a target interest rate in mind if you want to lock a loan but are watching the market. Trying to lock an interest rate on the day the mortgage rates have reached their lowest point in a year is like trying to get a royal flush in poker. It happens, but it’s not a realistic goal. It just means you were lucky. Just stick to your home financing goals and consider the big picture, and you’ll be fine.
Jun
20
Current Home Loan Rates
Filed Under Home Loans | Comments Off
Rate Detective
The present home loan interest rates continue to generate much discussion and excitement among professionals involved in the real estate industry. The current low home loan interest rate is beneficial to real estate agents, mortgage lenders, home appraisers and inspectors, tax advisers, homeowners, and economists. Compared almost with any time in the last decades, terms for financing homes are still really good.
The first time home buyer or whoever is investigating the real estate industry will need to be fully conscious of the current home loan interest rate because a difference of just a few percentage points can make the huge dissimilarity in monthly mortgage payment.
Homeowners who are thinking about shifting to larger homes because of their growing families can also benefit from today’s market. Also, people who currently own homes can benefit in today’s market by refinancing the existing balance of their mortgage. It would be a good idea and can save money if the rate is at least a percentage point lower than the mortgage rate. The refinancing also makes it possible for the homeowner to take an advantage of the equity which they have accumulated in their home. The refinancing also could mean to cut down the overall length of a mortgage to lower current home loan interest rates, hence saving money on interest payments.
Some local newspapers and online websites such as http://www.RateDetective.com.au carry the terms of these types of contracts. A home loan buyer can also come into contact with a loan representative at his local bank. Certainly, current home loan interest rates are also easily available on the website such as http://www.RateDetective.com.au. Also, many websites present instant data for individual zip codes. Some websites offer the simple online forms to potential home loan buyer to fill out so that the home loan lenders can quote an individualized home loan rate. Looking into the last decades and present real estate situation, the current home loan interest rate is very advantageous whoever is planning to buy dream home.
If you are planning and interested to buy a home for you or your child and would like to have a look on home loan interest rate, log on to http://www.RateDetective.com.au. With Rate Detective, you will be able to evaluate multiple home loan rates from world class life insurance companies.
The present home loan interest rates continue to generate much discussion and excitement among professionals involved in the real estate industry. The current low home loan interest rate is beneficial to real estate agents, mortgage lenders, home appraisers and inspectors, tax advisers, homeowners, and economists. Compared almost with any time in the last decades, terms for financing homes are still really good.
The first time home buyer or whoever is investigating the real estate industry will need to be fully conscious of the current home loan interest rate because a difference of just a few percentage points can make the huge dissimilarity in monthly mortgage payment.
Homeowners who are thinking about shifting to larger homes because of their growing families can also benefit from today’s market. Also, people who currently own homes can benefit in today’s market by refinancing the existing balance of their mortgage. It would be a good idea and can save money if the rate is at least a percentage point lower than the mortgage rate. The refinancing also makes it possible for the homeowner to take an advantage of the equity which they have accumulated in their home. The refinancing also could mean to cut down the overall length of a mortgage to lower current home loan interest rates, hence saving money on interest payments.
Some local newspapers and online websites such as http://www.RateDetective.com.au carry the terms of these types of contracts. A home loan buyer can also come into contact with a loan representative at his local bank. Certainly, current home loan interest rates are also easily available on the website such as http://www.RateDetective.com.au. Also, many websites present instant data for individual zip codes. Some websites offer the simple online forms to potential home loan buyer to fill out so that the home loan lenders can quote an individualized home loan rate. Looking into the last decades and present real estate situation, the current home loan interest rate is very advantageous whoever is planning to buy dream home.
If you are planning and interested to buy a home for you or your child and would like to have a look on home loan interest rate, log on to http://www.RateDetective.com.au. With Rate Detective, you will be able to evaluate multiple home loan rates from world class life insurance companies.
Jun
16
Impact of Risk Free Rate on Stock Retuns Evident From Karachi Stock Exchange Pakistan
Filed Under Home Loans | Comments Off
S.M. Zahid
Abstract
The current study looked at the relationship between risk free rate and stock market return. A five year monthly basis time series data from 2003-2007 of T-bills and KSE-100 index were taken for research study. For the analysis of data, simple regression model approach was applied. Stock market return was taken as dependent variable whereas Risk free rates as independent variables. Also, Pearson Correlation Matrix was also obtained through correlation model. The results suggested that risk free rates had no effect on dependant variable. Furthermore, no correlation between risk free rate and stock market return was found. Consequently, a bivariate relationship cannot exist between risk free rate and stock market return. A multiple regression model of the risk free rate and stock market return exhibits a strong autocorrelation, indicating that the stock market return is a function of more variable than risk free rate.
1. Introduction:
The risk free rate is the return on the security or a portfolio of securities that is free from default risk. Theoretically, the return on a zero-beta portfolio is the best estimate of the risk free rate. The CAPM predicts the relation ship risk of an asset and its expected return. This relationship is very useful in two important ways. First, it produces a benchmark for evaluating various investments. Second, it helps us to make an informed guess about the return that can be expected from an asset that has not been traded in the market.
Risk free rate is an increasingly essential ingredient of every return computed on financial assets. The security market line (SML) predicts a simple linear relationship between expected return and standard deviation while capital market line (CML) contributes a relationship between risk free rate and straight line emanating from risk free rate(Rf) to tangential to the efficient frontier.
Investors combine their uncorrelated securities help to lesson the risk of a portfolio. They want to know the reasonable level of risk reduction about their portfolios. Research studies look at what happens to portfolio risk as randomly selected stocks are combined to form equally weighted portfolios. When we begin with single stock, the risk of the portfolio is only the standard deviation of that one stock. As the number of randomly selected stocks held in the portfolio is increased, the total risk of the portfolio is reduced.
The total risk of comprise systematic risk and unsystematic risk. Systematic risk is due to risk factors that affect the overall market- such as changes in the nation’s economy, world energy situation, world political and economic situation. This kind of risk is not diversifiable even the well-diversified portfolio expose to this type of risk. The second component, unsystematic risk, is unique to particular company. It is independent to all factors regarding systematic risk. Investors always want to be compensated for taking systematic risk. They should not, however, expect the market to provide any extra compensation for bearing avoidable, diversifiable, unsystematic risk. It is this logic that lies behind capital asset pricing model (CAPM).
2. Significance of study:
This study aims to investigate the relationship between risk free rate (T-bills) and market return of Karachi stock exchange KSE-100 index. There was a controversy among the investors; some were of the view that Risk Free Rate affects the market positively while others were of the view stock market return moves independently irrespective of Risk Free Rates.
Thus in order to resolve this controversy, current study was conducted with the following objectives.
3. Objectives of study:
The following objective would be fulfilled during the study:
· To see quantitative impact of Risk Free Rate on Stock market return.
· To workout the correlation between risks free rate and stock market return.
· Suggestions and recommendation for investors.
4. Literature Review:
Peter Easton at el (July 2000) elaborated the empirical estimation of the expected rate of return on a portfolio of stocks. They inverted residual income valuation model to obtain an estimate of the expected rate of return for a portfolio of stocks. They used analogous approach in estimation of internal rate of return on a bond using market value and coupon payments. They contributed through the use of stock price and accounting data to simultaneously estimate the unique implied growth rate and internal rate of return. They recommended adjusted growth rate for valuation return of stocks. They proved that estimated market premium over the risk free rate is closer to the historical premium that that obtained by other studies using earning forecast data.
Roger G. Ibbotson (July 2002) estimated long run stock market return participating in the real economy. He decomposed the 1926-2000 historical equity return into supply factors including inflation, earnings, dividends, price to earning ratio, dividend payout ratio, book value, return on equity and GDP per capita. He concluded that the growth overall economic productivity is in line with the growth of corporate productivity measured by earnings. The bulk of return comes from dividend payment and nominal earning including inflation and earning growth. In order to calculate incremental risk and return, bonds have been used as reference point.
Christian Lundblad (February 2004) discussed risk-return tradeoff which is fundamental to finance. Previous studies found weaker relationship between the risk premium on the market portfolio and variance of its return in spite of the positive relationship. He explained this weakness is due to the fact of small nature of available data, as an extremely large number of time- series observations are required to precisely estimate this relationship. His main focus was on large span of data of each component required to compute the risk-return trade off which is indispensable for theory of finance.
Hui Guo and Robert F. Whitelaw (April 2005) developed evidence of intertemporal capital asset pricing model (ICAPM) and proved with the positive the relationship between stock market risk and return and the extent to which stock market volatility moves stock prices. They provided new evidence on the risk-return relation by estimating a variant of Merton’s (1973) intertemporal capital asset pricing model (ICAPM). They identified the two components of expected return- the risk component and the component due to the desire to hedge changes in investment opportunities. They proved that the estimated coefficient of relative risk aversion positive, statistically significant.
Rong Huang at el (May 2005) in the study of BM company, used residual-income valuation model simultaneously to estimate relationship between long term growth rate in abnormal earnings and cost of capital. They related forward, earnings-to- price (FEP) and book- to-market ratio in a linear fashion. The slope coefficient on BM is the long-term growth rate of abnormal earnings (g), and the constant term is the effective cost of capital, i.e., the difference between the cost of capital (r) and the growth rate in abnormal earnings. To empirically implement this valuation representation, they used the analysts’ one-year-ahead earnings forecasts to compute FEP and regressed the difference between FEP and the risk free rate (rf) on BM diminished by one, such that the intercept captures the firm-specific risk premium (rp) and the slope coefficient captures the firm-specific, long-term growth in abnormal earnings (g). They extracted the risk-free rate from FEP to account for the covariance in FEP and the risk-free rate.
Mika Vaihekoski (2007) discussed how to compute risk free rate from money market instruments, especially for test of capital asset pricing model and event studies. He used US T-bills and CDs for calculation. He presented two alternative approaches: the interest compounding approach and price difference approach. He concluded that the price difference approach is superior to commonly used compounding method. He did event studies and time series with the help of US T-bills whereas they are used for calculation of risk free rates.
Tamal Datta Chaudhuri (April 2008) used a structural approach to stock market return, risk-free rate and Capital Asset Pricing Model (CAPM). He developed a structural model, which shows interdependent relationship between risk free rate and stock market returns. It gives a new macroeconomics structural features which shape the price movement in stock exchange. He used a Granger test and a Sims test to prove the interdependence of two variables. He suggested that instead using of exogenous values of stock market returns and risk free rate, one should use estimated values of these variable form reduced form equation of Capital Asset Pricing Model (CAPM). He tested and proved with the data of individual companies.
5. Methodology:
5.1 Data collection
In order to conduct the current study all the stock markets of Pakistan were proposed, to be taken for study purpose. The stock markets in Pakistan were Lahore stock exchange (LSE), Islamabad stock exchange (ISE) and Karachi stock exchange (KSE) with different indices. Among these all, KSE-100 index was most important and working at top level in Pakistan. One hundred top companies from Karachi Stock Exchange comprise KSE-100 index. Historical data indicated that most of the investors were investing in the KSE-100. The performance of the total businesses of Pakistan can be viewed by the movement of KSE-100 index. Keeping in view, the importance of KSE-100 index, a sample of indices from (2003-2007) was selected for data collection and was taken as dependent variable.
Similarly T-Bill is an important instrument of monetary policy, operated by State Bank of Pakistan. Through the T-bills, the central bank of Pakistan controls the economy and interest rate of the country. T-bill rates were collected from the State Bank of Pakistan for same period and were taken as independent variables. Then the data were feed into the computer software in the work sheet form.
5.2 Hypothesis Formulation
Ho: The risk free rate has no impact on market return.
Ha: The risk free rate has impact on market return.
5.3 Hypothesis Testing
In order to test these hypotheses, simple regression model in the following form was applied. The regression model was as under:
Y = ? +? X1 + €
Where
X1 = values of risk free rate
? = Y intercept
? = Slope coefficient
Y = values of stock market return
€ = Error Term
It is estimated by the regression equation.
Where
? = values of stock market return in the sample
a = y intercept
b = slope coefficient.
x = values of risk free rates in the sample.
Whereas
b = slope of estimated regression equation
X = values of the risk free rates
Y = values of the stock market return
= Mean of the risk free rates.
= Mean of the Stock market return
n = Number of observations in the sample
Whereas
= Mean of the Stock market return
= Mean of the risk free rates
a = y intercept
b = slope coefficient.
The coefficient of determinant, R2 measures how well independent variable explains the dependent variable, that is, the degree of association between dependent variable and independent variables.
The applied model included one dependent variable and one explanatory variable. In the current study the risk free rate was considered as explanatory variable while market return as dependent variable.
6. Results and discussions:
Data collected from 2003-2008 years on monthly basis was analyzed by applying Simple Regression Model Approach in the following form.
Y = a +b X1 + €
Whereas
Y = Stock Market Return
X1 = Risk Free Rate
b = Coefficient of X1
a = intercept
€ = Error
6.1 Empirical Results
Empirical results drawn through regression model approach are given in the table below.
Table -1
Variables
Coefficients
t-Stat
Intercept
0.0399
2.782
Risk free rate
-0.0055
-0.843
R Square
0.012
6.2 Hypothesis Testing:
Ho = 0
Ha ? 0
Data in the table (1) revealed that there was negative association between risk free rate and market return. But statistically this variable was found insignificant. Thus null hypothesis was accepted that risk free rate was not significant explanatory variable. Alternative hypothesis was rejected. Figure (a) also indicates that there is no relation between them.
6.3 Coefficient of determination (R2)
It is the primary way, we can measure the extent or strength of association that exists between two variables, dependent and independent variables or in other way the coefficient of determination is developed to measure the amount of variation in dependent variable that is explained by the regression line.
Data given in the table-1 indicated that the estimated value of R2 was 0.0123 showing that the strength of association between stock market return and risk free rates was very poor or in other words, only 1.2% of the total variation in stock market returns was being explained due to independent variable.
Figure a
6.4 Correlation Coefficient
Coefficient of correlation is the second measure that can be used to describe how well one variable is explained by another variable. When study is based on some sample date, then coefficient of correlation is denoted by (r) and statistically is the square root of sample coefficient of determination.
Coefficient of correlation (r) = 2 —————— (b)
When the slope of estimation equation (b) is positive r is the positive square root but if (b) is negative, r is the negative square root. Thus sign of r indicates the direction of relationship between two variables-stock market return and risk free rate.
In the present study scenario the value of (r) coefficient of determination was found
r = -0.11
Thus relationship between two variables was negative indicating that slop is negative. The amount of r was 0.11 which indicated that risk free rate was poor explanatory variable for stock market return.
In order to see the two way relationship between the two variables that is RFR and market return. Pearson Correlation Matrix was obtained by analysis the data, through correlation model.
The results obtained through this analysis are given in the table-2.
Table-2
Correlation
RFR
M Return
RFR¹ Pearson Correlation
Sig. (2-tailed)
1.000
-0.110
0.403
M Return² Pearson Correlation
Sig. (2-tailed)
-0.110
0.403
1.000
¹ Risk Free rates
² Stock Market Return
The above table-2 indicates that the correlation between risk free rate and stock market return is negative. The correlation -0.110 is in-significant as the P value is 0.403 > 0.05.
Data given in the table-2 indicated that there was found no significant relation between these two variables; it was found that RFR and Market return move independently with each other.
7. Conclusion:
Correlation coefficient is a standardized statistical measure of linear relationship between two variables. A positive correlation coefficient indicates that the returns from two securities generally move in the same direction, while a negative correlation coefficient implies that they generally move in opposite direction. A zero correlation coefficient implies that implies that the returns from two securities are uncorrelated; they show no tendency to vary together in either positive or negative linear fashion.
The current study had the prime objective to identify the some relationship between risk free rate and stock market return. It was concluded that the risk free rates had no effect upon stock market return. These variables move independently ineffective from each other as there was very poor correlation and weak association between the two variables. These results also consistent with the study of Confidence A. Amadi, (Associate Professor of finance at Florida A &M University) who conducted the study on the relationship between the market risk premium and risk free interest rate.
8. Recommendations:
In the current scenario of Pakistan, it was the dire need of the investors to find the securities having less correlation that can be used to diversify their portfolios for investments. In the volatile markets like Karachi Stock Exchange (KSE), the T-bill is a useful instrument for investors who want to shuffle and readjust their portfolios. Keeping in view the findings and conclusion of the current study, it was proposed and recommended for the investors that they may include T-bills in their investment portfolios in order to save their investments from total collapse. Such diversified investment reduces the risk and increase returns comparatively more. The applied regression model also supports this recommendation.
References:
1. Empirical estimation of the expected rate of return on a Portfolio of stocks by Peter Easton 2000.
2. Stock market returns in the long run: participating in the real economy by Roger G. Ibbotson, PhD. July 9, 2002.
3. A structural approach to Stock Market Returns, Risk Free Rate and CAPM Tamal Datta Chaudhuri Investment Bank Of India, ltd. - Ibs Kolkata the ICFAI journal of applied finance, vol. 14, no. 4, pp. 21-31, April 2008.
4. The risk return tradeoff in the long-run: 1836-2003 Christian Lundblad¤ October 2004 uncovering the risk–return relation in the stock market Hui Guo and Robert F. Whitelaw working paper 2001-001c January 2001 revised April 2005.
5. An Intertemporal capital asset pricing model by Robert c. Merton Econometrica, vol. 41, no. 5. (Sep., 1973), pp. 867-887.stable URL: econometrica is currently published by the econometric society.
6. On The Calculation of the Risk Free Rate for Tests of Asset Pricing Models Mika Vaihekoski* Comments are Welcome 01-03-2007.
7. BM Company, Residual-Income Valuation Model to Estimate Relationship between long term growth rate in abnormal earnings and cost of capital. Rong Huang at el (May 2005) Accounting Association, Goteborg
8. Wadhwani, S.B., (1999) “The US Stock Market and the Global Economic Crisis,” National Institute Economic Review, 86-105.
9. Stock Market Risk-Return Inference, an unconditional non-parametric approach by Thomas Mikosch and C¸At¸Alin St¸Aric¸a and the Danish Research council grant no 21-01-0546.
10. Bond Portfolio Optimization A Risk-Return Approach by Olaf Korn and Christian Koziol Prof. Dr. Olaf Korn of Corporate Finance, ( March,2002) Aduate School of Management, Burgplatz 2, D-56179 Vallendar, Germany Dr. Christian Koziol, Chair of Finance, University of Mannheim, D-68131 Mannheim, Germany.
11. On the relationship between the market risk premium and the risk-free interest rate by confidence w. Amadi (Sep, 2005) Finance at Florida A&M University.
Abstract
The current study looked at the relationship between risk free rate and stock market return. A five year monthly basis time series data from 2003-2007 of T-bills and KSE-100 index were taken for research study. For the analysis of data, simple regression model approach was applied. Stock market return was taken as dependent variable whereas Risk free rates as independent variables. Also, Pearson Correlation Matrix was also obtained through correlation model. The results suggested that risk free rates had no effect on dependant variable. Furthermore, no correlation between risk free rate and stock market return was found. Consequently, a bivariate relationship cannot exist between risk free rate and stock market return. A multiple regression model of the risk free rate and stock market return exhibits a strong autocorrelation, indicating that the stock market return is a function of more variable than risk free rate.
1. Introduction:
The risk free rate is the return on the security or a portfolio of securities that is free from default risk. Theoretically, the return on a zero-beta portfolio is the best estimate of the risk free rate. The CAPM predicts the relation ship risk of an asset and its expected return. This relationship is very useful in two important ways. First, it produces a benchmark for evaluating various investments. Second, it helps us to make an informed guess about the return that can be expected from an asset that has not been traded in the market.
Risk free rate is an increasingly essential ingredient of every return computed on financial assets. The security market line (SML) predicts a simple linear relationship between expected return and standard deviation while capital market line (CML) contributes a relationship between risk free rate and straight line emanating from risk free rate(Rf) to tangential to the efficient frontier.
Investors combine their uncorrelated securities help to lesson the risk of a portfolio. They want to know the reasonable level of risk reduction about their portfolios. Research studies look at what happens to portfolio risk as randomly selected stocks are combined to form equally weighted portfolios. When we begin with single stock, the risk of the portfolio is only the standard deviation of that one stock. As the number of randomly selected stocks held in the portfolio is increased, the total risk of the portfolio is reduced.
The total risk of comprise systematic risk and unsystematic risk. Systematic risk is due to risk factors that affect the overall market- such as changes in the nation’s economy, world energy situation, world political and economic situation. This kind of risk is not diversifiable even the well-diversified portfolio expose to this type of risk. The second component, unsystematic risk, is unique to particular company. It is independent to all factors regarding systematic risk. Investors always want to be compensated for taking systematic risk. They should not, however, expect the market to provide any extra compensation for bearing avoidable, diversifiable, unsystematic risk. It is this logic that lies behind capital asset pricing model (CAPM).
2. Significance of study:
This study aims to investigate the relationship between risk free rate (T-bills) and market return of Karachi stock exchange KSE-100 index. There was a controversy among the investors; some were of the view that Risk Free Rate affects the market positively while others were of the view stock market return moves independently irrespective of Risk Free Rates.
Thus in order to resolve this controversy, current study was conducted with the following objectives.
3. Objectives of study:
The following objective would be fulfilled during the study:
· To see quantitative impact of Risk Free Rate on Stock market return.
· To workout the correlation between risks free rate and stock market return.
· Suggestions and recommendation for investors.
4. Literature Review:
Peter Easton at el (July 2000) elaborated the empirical estimation of the expected rate of return on a portfolio of stocks. They inverted residual income valuation model to obtain an estimate of the expected rate of return for a portfolio of stocks. They used analogous approach in estimation of internal rate of return on a bond using market value and coupon payments. They contributed through the use of stock price and accounting data to simultaneously estimate the unique implied growth rate and internal rate of return. They recommended adjusted growth rate for valuation return of stocks. They proved that estimated market premium over the risk free rate is closer to the historical premium that that obtained by other studies using earning forecast data.
Roger G. Ibbotson (July 2002) estimated long run stock market return participating in the real economy. He decomposed the 1926-2000 historical equity return into supply factors including inflation, earnings, dividends, price to earning ratio, dividend payout ratio, book value, return on equity and GDP per capita. He concluded that the growth overall economic productivity is in line with the growth of corporate productivity measured by earnings. The bulk of return comes from dividend payment and nominal earning including inflation and earning growth. In order to calculate incremental risk and return, bonds have been used as reference point.
Christian Lundblad (February 2004) discussed risk-return tradeoff which is fundamental to finance. Previous studies found weaker relationship between the risk premium on the market portfolio and variance of its return in spite of the positive relationship. He explained this weakness is due to the fact of small nature of available data, as an extremely large number of time- series observations are required to precisely estimate this relationship. His main focus was on large span of data of each component required to compute the risk-return trade off which is indispensable for theory of finance.
Hui Guo and Robert F. Whitelaw (April 2005) developed evidence of intertemporal capital asset pricing model (ICAPM) and proved with the positive the relationship between stock market risk and return and the extent to which stock market volatility moves stock prices. They provided new evidence on the risk-return relation by estimating a variant of Merton’s (1973) intertemporal capital asset pricing model (ICAPM). They identified the two components of expected return- the risk component and the component due to the desire to hedge changes in investment opportunities. They proved that the estimated coefficient of relative risk aversion positive, statistically significant.
Rong Huang at el (May 2005) in the study of BM company, used residual-income valuation model simultaneously to estimate relationship between long term growth rate in abnormal earnings and cost of capital. They related forward, earnings-to- price (FEP) and book- to-market ratio in a linear fashion. The slope coefficient on BM is the long-term growth rate of abnormal earnings (g), and the constant term is the effective cost of capital, i.e., the difference between the cost of capital (r) and the growth rate in abnormal earnings. To empirically implement this valuation representation, they used the analysts’ one-year-ahead earnings forecasts to compute FEP and regressed the difference between FEP and the risk free rate (rf) on BM diminished by one, such that the intercept captures the firm-specific risk premium (rp) and the slope coefficient captures the firm-specific, long-term growth in abnormal earnings (g). They extracted the risk-free rate from FEP to account for the covariance in FEP and the risk-free rate.
Mika Vaihekoski (2007) discussed how to compute risk free rate from money market instruments, especially for test of capital asset pricing model and event studies. He used US T-bills and CDs for calculation. He presented two alternative approaches: the interest compounding approach and price difference approach. He concluded that the price difference approach is superior to commonly used compounding method. He did event studies and time series with the help of US T-bills whereas they are used for calculation of risk free rates.
Tamal Datta Chaudhuri (April 2008) used a structural approach to stock market return, risk-free rate and Capital Asset Pricing Model (CAPM). He developed a structural model, which shows interdependent relationship between risk free rate and stock market returns. It gives a new macroeconomics structural features which shape the price movement in stock exchange. He used a Granger test and a Sims test to prove the interdependence of two variables. He suggested that instead using of exogenous values of stock market returns and risk free rate, one should use estimated values of these variable form reduced form equation of Capital Asset Pricing Model (CAPM). He tested and proved with the data of individual companies.
5. Methodology:
5.1 Data collection
In order to conduct the current study all the stock markets of Pakistan were proposed, to be taken for study purpose. The stock markets in Pakistan were Lahore stock exchange (LSE), Islamabad stock exchange (ISE) and Karachi stock exchange (KSE) with different indices. Among these all, KSE-100 index was most important and working at top level in Pakistan. One hundred top companies from Karachi Stock Exchange comprise KSE-100 index. Historical data indicated that most of the investors were investing in the KSE-100. The performance of the total businesses of Pakistan can be viewed by the movement of KSE-100 index. Keeping in view, the importance of KSE-100 index, a sample of indices from (2003-2007) was selected for data collection and was taken as dependent variable.
Similarly T-Bill is an important instrument of monetary policy, operated by State Bank of Pakistan. Through the T-bills, the central bank of Pakistan controls the economy and interest rate of the country. T-bill rates were collected from the State Bank of Pakistan for same period and were taken as independent variables. Then the data were feed into the computer software in the work sheet form.
5.2 Hypothesis Formulation
Ho: The risk free rate has no impact on market return.
Ha: The risk free rate has impact on market return.
5.3 Hypothesis Testing
In order to test these hypotheses, simple regression model in the following form was applied. The regression model was as under:
Y = ? +? X1 + €
Where
X1 = values of risk free rate
? = Y intercept
? = Slope coefficient
Y = values of stock market return
€ = Error Term
It is estimated by the regression equation.
Where
? = values of stock market return in the sample
a = y intercept
b = slope coefficient.
x = values of risk free rates in the sample.
Whereas
b = slope of estimated regression equation
X = values of the risk free rates
Y = values of the stock market return
= Mean of the risk free rates.
= Mean of the Stock market return
n = Number of observations in the sample
Whereas
= Mean of the Stock market return
= Mean of the risk free rates
a = y intercept
b = slope coefficient.
The coefficient of determinant, R2 measures how well independent variable explains the dependent variable, that is, the degree of association between dependent variable and independent variables.
The applied model included one dependent variable and one explanatory variable. In the current study the risk free rate was considered as explanatory variable while market return as dependent variable.
6. Results and discussions:
Data collected from 2003-2008 years on monthly basis was analyzed by applying Simple Regression Model Approach in the following form.
Y = a +b X1 + €
Whereas
Y = Stock Market Return
X1 = Risk Free Rate
b = Coefficient of X1
a = intercept
€ = Error
6.1 Empirical Results
Empirical results drawn through regression model approach are given in the table below.
Table -1
Variables
Coefficients
t-Stat
Intercept
0.0399
2.782
Risk free rate
-0.0055
-0.843
R Square
0.012
6.2 Hypothesis Testing:
Ho = 0
Ha ? 0
Data in the table (1) revealed that there was negative association between risk free rate and market return. But statistically this variable was found insignificant. Thus null hypothesis was accepted that risk free rate was not significant explanatory variable. Alternative hypothesis was rejected. Figure (a) also indicates that there is no relation between them.
6.3 Coefficient of determination (R2)
It is the primary way, we can measure the extent or strength of association that exists between two variables, dependent and independent variables or in other way the coefficient of determination is developed to measure the amount of variation in dependent variable that is explained by the regression line.
Data given in the table-1 indicated that the estimated value of R2 was 0.0123 showing that the strength of association between stock market return and risk free rates was very poor or in other words, only 1.2% of the total variation in stock market returns was being explained due to independent variable.
Figure a
6.4 Correlation Coefficient
Coefficient of correlation is the second measure that can be used to describe how well one variable is explained by another variable. When study is based on some sample date, then coefficient of correlation is denoted by (r) and statistically is the square root of sample coefficient of determination.
Coefficient of correlation (r) = 2 —————— (b)
When the slope of estimation equation (b) is positive r is the positive square root but if (b) is negative, r is the negative square root. Thus sign of r indicates the direction of relationship between two variables-stock market return and risk free rate.
In the present study scenario the value of (r) coefficient of determination was found
r = -0.11
Thus relationship between two variables was negative indicating that slop is negative. The amount of r was 0.11 which indicated that risk free rate was poor explanatory variable for stock market return.
In order to see the two way relationship between the two variables that is RFR and market return. Pearson Correlation Matrix was obtained by analysis the data, through correlation model.
The results obtained through this analysis are given in the table-2.
Table-2
Correlation
RFR
M Return
RFR¹ Pearson Correlation
Sig. (2-tailed)
1.000
-0.110
0.403
M Return² Pearson Correlation
Sig. (2-tailed)
-0.110
0.403
1.000
¹ Risk Free rates
² Stock Market Return
The above table-2 indicates that the correlation between risk free rate and stock market return is negative. The correlation -0.110 is in-significant as the P value is 0.403 > 0.05.
Data given in the table-2 indicated that there was found no significant relation between these two variables; it was found that RFR and Market return move independently with each other.
7. Conclusion:
Correlation coefficient is a standardized statistical measure of linear relationship between two variables. A positive correlation coefficient indicates that the returns from two securities generally move in the same direction, while a negative correlation coefficient implies that they generally move in opposite direction. A zero correlation coefficient implies that implies that the returns from two securities are uncorrelated; they show no tendency to vary together in either positive or negative linear fashion.
The current study had the prime objective to identify the some relationship between risk free rate and stock market return. It was concluded that the risk free rates had no effect upon stock market return. These variables move independently ineffective from each other as there was very poor correlation and weak association between the two variables. These results also consistent with the study of Confidence A. Amadi, (Associate Professor of finance at Florida A &M University) who conducted the study on the relationship between the market risk premium and risk free interest rate.
8. Recommendations:
In the current scenario of Pakistan, it was the dire need of the investors to find the securities having less correlation that can be used to diversify their portfolios for investments. In the volatile markets like Karachi Stock Exchange (KSE), the T-bill is a useful instrument for investors who want to shuffle and readjust their portfolios. Keeping in view the findings and conclusion of the current study, it was proposed and recommended for the investors that they may include T-bills in their investment portfolios in order to save their investments from total collapse. Such diversified investment reduces the risk and increase returns comparatively more. The applied regression model also supports this recommendation.
References:
1. Empirical estimation of the expected rate of return on a Portfolio of stocks by Peter Easton 2000.
2. Stock market returns in the long run: participating in the real economy by Roger G. Ibbotson, PhD. July 9, 2002.
3. A structural approach to Stock Market Returns, Risk Free Rate and CAPM Tamal Datta Chaudhuri Investment Bank Of India, ltd. - Ibs Kolkata the ICFAI journal of applied finance, vol. 14, no. 4, pp. 21-31, April 2008.
4. The risk return tradeoff in the long-run: 1836-2003 Christian Lundblad¤ October 2004 uncovering the risk–return relation in the stock market Hui Guo and Robert F. Whitelaw working paper 2001-001c January 2001 revised April 2005.
5. An Intertemporal capital asset pricing model by Robert c. Merton Econometrica, vol. 41, no. 5. (Sep., 1973), pp. 867-887.stable URL: econometrica is currently published by the econometric society.
6. On The Calculation of the Risk Free Rate for Tests of Asset Pricing Models Mika Vaihekoski* Comments are Welcome 01-03-2007.
7. BM Company, Residual-Income Valuation Model to Estimate Relationship between long term growth rate in abnormal earnings and cost of capital. Rong Huang at el (May 2005) Accounting Association, Goteborg
8. Wadhwani, S.B., (1999) “The US Stock Market and the Global Economic Crisis,” National Institute Economic Review, 86-105.
9. Stock Market Risk-Return Inference, an unconditional non-parametric approach by Thomas Mikosch and C¸At¸Alin St¸Aric¸a and the Danish Research council grant no 21-01-0546.
10. Bond Portfolio Optimization A Risk-Return Approach by Olaf Korn and Christian Koziol Prof. Dr. Olaf Korn of Corporate Finance, ( March,2002) Aduate School of Management, Burgplatz 2, D-56179 Vallendar, Germany Dr. Christian Koziol, Chair of Finance, University of Mannheim, D-68131 Mannheim, Germany.
11. On the relationship between the market risk premium and the risk-free interest rate by confidence w. Amadi (Sep, 2005) Finance at Florida A&M University.
Jun
14
Home Loans
Filed Under Home Loans | Comments Off
Jaksha Shah
There are many types of home loans available in India offered by various Banks and Housing Finance Companies like:
Home purchase loans : Loan for purchase of a house.
Home improvement loans : Loan for repair works and renovations in a home already purchased.
Home construction loans : Loans for construction of a new home.
Home extension loans : Loans for extending or expanding an existing home.
Home conversion loans : Loans for those who have financed the present home with home loan and wish to purchase and move to another home for which some more fund is required. Existing home loan is transferred to new home without need of pre-paying the previous loan.
Land purchase loans : Loans for purchasing a land (plot) for both home construction and investment purpose.
Bridge loans : Loans are designed for people who wish to sell the existing home and purchase another. The bridge loan helps to finance the new home until a buyer is found for the old home.
Balance transfer loans : Loan to help you to pay off an existing home loan and avail the option of a loan with a lower rate of interest.
Refinance loans : Loans to help you to pay off the debt you have incurred from private sources like relatives and friends for the purchase of your present home.
Stamp duty loans : Loans for paying stamp duty.
Loans to NRIs : Loans for NRIs wishing to build or buy a home in India.
Why one should take a loan ?
The loan not only gives you tax benefits, it gives you the facility to repay the loan in EMIs. Both principal as well as interest paid attract tax benefits.
But the loan does not come free.
Other costs are involved.
Processing charge : It is a fee payable to the bank or hosuing finance company at the time of applying for a loan. It may be a fixed amount or may also be percentage of the loan amount.
Pre-payment penalty : When loan is paid before the expiry of the agreed duration, the person has to pay penalty fixed by the company / bank and it may 1-2 % of the amount being pre-paid.
Commitment fees : Though not all banks / companies, many banks / companies levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.
Miscellaneous charges : Some lenders may levy a documentation or consultant charges.Registration of mortgage deed.
If you want a loan, though you like it or not, you have to pay these charges.
Documents required :
Income proof : A salary slip for employed, or IT returns of at least 3 years for self-employed.
Residence Proof : Ration card, land line bill (preferably MTNL), Electric bill.
Photo ID Proof : Driving License, Pan Card, Voter’s ID card etc.
Age proof
There are many types of home loans available in India offered by various Banks and Housing Finance Companies like:
Home purchase loans : Loan for purchase of a house.
Home improvement loans : Loan for repair works and renovations in a home already purchased.
Home construction loans : Loans for construction of a new home.
Home extension loans : Loans for extending or expanding an existing home.
Home conversion loans : Loans for those who have financed the present home with home loan and wish to purchase and move to another home for which some more fund is required. Existing home loan is transferred to new home without need of pre-paying the previous loan.
Land purchase loans : Loans for purchasing a land (plot) for both home construction and investment purpose.
Bridge loans : Loans are designed for people who wish to sell the existing home and purchase another. The bridge loan helps to finance the new home until a buyer is found for the old home.
Balance transfer loans : Loan to help you to pay off an existing home loan and avail the option of a loan with a lower rate of interest.
Refinance loans : Loans to help you to pay off the debt you have incurred from private sources like relatives and friends for the purchase of your present home.
Stamp duty loans : Loans for paying stamp duty.
Loans to NRIs : Loans for NRIs wishing to build or buy a home in India.
Why one should take a loan ?
The loan not only gives you tax benefits, it gives you the facility to repay the loan in EMIs. Both principal as well as interest paid attract tax benefits.
But the loan does not come free.
Other costs are involved.
Processing charge : It is a fee payable to the bank or hosuing finance company at the time of applying for a loan. It may be a fixed amount or may also be percentage of the loan amount.
Pre-payment penalty : When loan is paid before the expiry of the agreed duration, the person has to pay penalty fixed by the company / bank and it may 1-2 % of the amount being pre-paid.
Commitment fees : Though not all banks / companies, many banks / companies levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.
Miscellaneous charges : Some lenders may levy a documentation or consultant charges.Registration of mortgage deed.
If you want a loan, though you like it or not, you have to pay these charges.
Documents required :
Income proof : A salary slip for employed, or IT returns of at least 3 years for self-employed.
Residence Proof : Ration card, land line bill (preferably MTNL), Electric bill.
Photo ID Proof : Driving License, Pan Card, Voter’s ID card etc.
Age proof
Jun
14
Psst.tell Your Kids That Buying A Home Is Easier Than They Think! Series Part I
Filed Under Home Loans | Comments Off
Kristin Abouelata - Home Loans
We encourage our kids to plan for their future, but we seldom include buying a first home sooner than average as a path to building that future. Let them know buying a home is easier than they think.
Most of the people who read this column are not first time homebuyers. The fact of the matter is many of you that are first time homebuyers and reading this article are relatively mature individuals who are fighting off your commitment fears of being tied to a mortgage. But there is a huge segment of the population that could buy their first home, yet it doesn’t occur to them to do so. Who are these people? Well, it’s your 24 year old son or daughter, new to the work force, and is throwing away money on rent somewhere. Encouraging your children to buy a home when they are young is some of the soundest financial advice you can give them. Equity in a home is an easy way to grow one’s portfolio with very little investment. But the fact of the matter is it doesn’t occur to most of us to encourage the younger generation to buy early in their lives. And trust me, it rarely occurs to our kids themselves to consider buying a home in the early twenties. They are more concerned with buying a new Halo 3 for their Xbox.
Why do so many people miss the boat on this opportunity? It could be they plan to be in the area for only a short time because they will job hop to advance their career, thus viewing a mortgage as “too permanent.” I counter to simply sell the house when you move. Or maybe they expect their income to double or triple over the next three years. I say buy a home now, then upgrade to a new home; sell or rent the old house. Investing in real estate is a proven, safe and solid return on investment. And with the right combination of credit history (or a history of paying utilities, cable and your cell phone on time) and no money down, you or someone you care about can start investing in the future.
When Junior starts his new job at the company and 401(K) is available, he’s been informed by his folks, boss or peers to enroll and contribute at least a little something to it with every paycheck. Yet, he is rarely counseled quit renting that apartment for $750 a month and buy a $75,000 house. Where will he come up with the money to do it? There are multiple options for first time buyers that allow for 100% financing. Get the seller to kick in closing costs (up to 6% of sales price with some products), and one can close on a loan and bring no funds to the table. If your home value appreciates 4% in the next year, that’s a nice return on a no cash investment.
For some time, I’ve considered writing this series for first time buyers to let them know buying a home is easier than they think. But, the more I thought about it, the more I realized the advice I would offer would most likely not reach my target audience. So parents, it is up to you to supply your kids with this last little bit of advice and help to set them free to further establish their independence in this world. Clip this article out and tape it to their iPOD or the steering wheel of their car - someplace it will get noticed.
I think for most of us who have been through the experience, our first home buy was a very daunting experience. There are so many choices and unknowns - it can be overwhelming. In this series, I will try to break it down the process into small logical steps and make it easier understand the steps involved in financing your first home. Where do you start? That is perhaps the easiest part. Our newly established worker should first make a list of all his or her debt obligations such as student loans (unless deferred), car payments, credit card debt, etc. Hopefully at this age, this will be a small list. Then add what you think amount you could afford for a mortgage. Take that amount and divide it by your gross monthly income. If you come in at 43% or less, you’re in business. If you have something in your savings or checking - great. If not, don’t let it deter you. You have options.
Contact a mortgage specialist to drill out the details and find a good realtor who knows your market for housing you can afford. What next? Get ready to tell your landlord “Adios!.”
We encourage our kids to plan for their future, but we seldom include buying a first home sooner than average as a path to building that future. Let them know buying a home is easier than they think.
Most of the people who read this column are not first time homebuyers. The fact of the matter is many of you that are first time homebuyers and reading this article are relatively mature individuals who are fighting off your commitment fears of being tied to a mortgage. But there is a huge segment of the population that could buy their first home, yet it doesn’t occur to them to do so. Who are these people? Well, it’s your 24 year old son or daughter, new to the work force, and is throwing away money on rent somewhere. Encouraging your children to buy a home when they are young is some of the soundest financial advice you can give them. Equity in a home is an easy way to grow one’s portfolio with very little investment. But the fact of the matter is it doesn’t occur to most of us to encourage the younger generation to buy early in their lives. And trust me, it rarely occurs to our kids themselves to consider buying a home in the early twenties. They are more concerned with buying a new Halo 3 for their Xbox.
Why do so many people miss the boat on this opportunity? It could be they plan to be in the area for only a short time because they will job hop to advance their career, thus viewing a mortgage as “too permanent.” I counter to simply sell the house when you move. Or maybe they expect their income to double or triple over the next three years. I say buy a home now, then upgrade to a new home; sell or rent the old house. Investing in real estate is a proven, safe and solid return on investment. And with the right combination of credit history (or a history of paying utilities, cable and your cell phone on time) and no money down, you or someone you care about can start investing in the future.
When Junior starts his new job at the company and 401(K) is available, he’s been informed by his folks, boss or peers to enroll and contribute at least a little something to it with every paycheck. Yet, he is rarely counseled quit renting that apartment for $750 a month and buy a $75,000 house. Where will he come up with the money to do it? There are multiple options for first time buyers that allow for 100% financing. Get the seller to kick in closing costs (up to 6% of sales price with some products), and one can close on a loan and bring no funds to the table. If your home value appreciates 4% in the next year, that’s a nice return on a no cash investment.
For some time, I’ve considered writing this series for first time buyers to let them know buying a home is easier than they think. But, the more I thought about it, the more I realized the advice I would offer would most likely not reach my target audience. So parents, it is up to you to supply your kids with this last little bit of advice and help to set them free to further establish their independence in this world. Clip this article out and tape it to their iPOD or the steering wheel of their car - someplace it will get noticed.
I think for most of us who have been through the experience, our first home buy was a very daunting experience. There are so many choices and unknowns - it can be overwhelming. In this series, I will try to break it down the process into small logical steps and make it easier understand the steps involved in financing your first home. Where do you start? That is perhaps the easiest part. Our newly established worker should first make a list of all his or her debt obligations such as student loans (unless deferred), car payments, credit card debt, etc. Hopefully at this age, this will be a small list. Then add what you think amount you could afford for a mortgage. Take that amount and divide it by your gross monthly income. If you come in at 43% or less, you’re in business. If you have something in your savings or checking - great. If not, don’t let it deter you. You have options.
Contact a mortgage specialist to drill out the details and find a good realtor who knows your market for housing you can afford. What next? Get ready to tell your landlord “Adios!.”
Jun
1
Webhosting Providers Ratings
Filed Under Home Loans | Comments Off
Hosting Ratings
The idea of ranking websites is to make it easy for the customer to select the required web hosting service. Web hosting ratings are established on a large amount of factors like : Competitive superior price, customer support facility, security feature. Web hosting reports allows you to find the web hosts that perform the best and specially in the sector of your choice. The web hosting ratings helps you to make a decision regarding that web hosting ratings are backed with reviews that can help you to compare the services being offered by different web hosting companies, you get an opportunity of comparing various web hosting services on one site. Reading web hosting ratings is absolutely a big way to gather together details and information in a short time.
I am now going to share three web hosting examples only which are rated accordingly. The examples are as follows :Please note thiat is only an example. Fol updated review visit my web hosting ratings site
1) Apollo Hosting service provider has a rating of 5 out of 5 and it is rated as top 1. This reputed web hosting company has low set up fees with lots of features and resources. It can provide multiple websites with just one account to maintain all of them. It can submit windows or Linux web hosting. The customer software is good ever since it can provide a make a home chat facility which is available 24 / 7. The company furthermore gives a 30 day money back guarantee. It in addition incorporates many built in aspects investing in a budget price plan.
2) Infinity Host has a rating of 4.5 out of 5 and is top rated at number 2. This web hosting provider is mainly for those who have a tight budget. This company offers good hosting services with their budget VPS plans as one of their hosting packages. It also boasts of its shared hosting facility which has a exceptionally high security feature. Infinity Host gives allocated resource facility in form to prevent any declerating minimal by additional sites which are hosted on the same server. This web hosting association is also rated for its “send mail” procedure facility which prevents bouncing of email. Most of the hosting businesses bidder the regular shared hosting care while Infinity Host offers the VPS through a so called “Budget Plan”, which is essentially impressive.
3) Web.com is rated providing 4 out of 5 points and is believed to be number 3. The basis on that the rating is done due to various features that they offer through the hosting package. They produce a simple hosting package among marketing and shopping cart support. They have a rule hosting solution which is mainly suited for personal or hobby sites. They have a pricey plan that incorporates an unlimited transfer facility. Web.com provides a vast online library facility provided a fast substantiation system.
The idea of ranking websites is to make it easy for the customer to select the required web hosting service. Web hosting ratings are established on a large amount of factors like : Competitive superior price, customer support facility, security feature. Web hosting reports allows you to find the web hosts that perform the best and specially in the sector of your choice. The web hosting ratings helps you to make a decision regarding that web hosting ratings are backed with reviews that can help you to compare the services being offered by different web hosting companies, you get an opportunity of comparing various web hosting services on one site. Reading web hosting ratings is absolutely a big way to gather together details and information in a short time.
I am now going to share three web hosting examples only which are rated accordingly. The examples are as follows :Please note thiat is only an example. Fol updated review visit my web hosting ratings site
1) Apollo Hosting service provider has a rating of 5 out of 5 and it is rated as top 1. This reputed web hosting company has low set up fees with lots of features and resources. It can provide multiple websites with just one account to maintain all of them. It can submit windows or Linux web hosting. The customer software is good ever since it can provide a make a home chat facility which is available 24 / 7. The company furthermore gives a 30 day money back guarantee. It in addition incorporates many built in aspects investing in a budget price plan.
2) Infinity Host has a rating of 4.5 out of 5 and is top rated at number 2. This web hosting provider is mainly for those who have a tight budget. This company offers good hosting services with their budget VPS plans as one of their hosting packages. It also boasts of its shared hosting facility which has a exceptionally high security feature. Infinity Host gives allocated resource facility in form to prevent any declerating minimal by additional sites which are hosted on the same server. This web hosting association is also rated for its “send mail” procedure facility which prevents bouncing of email. Most of the hosting businesses bidder the regular shared hosting care while Infinity Host offers the VPS through a so called “Budget Plan”, which is essentially impressive.
3) Web.com is rated providing 4 out of 5 points and is believed to be number 3. The basis on that the rating is done due to various features that they offer through the hosting package. They produce a simple hosting package among marketing and shopping cart support. They have a rule hosting solution which is mainly suited for personal or hobby sites. They have a pricey plan that incorporates an unlimited transfer facility. Web.com provides a vast online library facility provided a fast substantiation system.
Jun
1
Home Loans for People with Bad Credit
Filed Under Home Loans | Comments Off
Alberto Hren
Almost every person needs a home loan sooner or later. If your incoming is reasonable and regular and your credit score is good enough, availing of a home loan is in fact simple. Though, for individuals with bad credit obtaining home loans is not so effortless. Evidently, banks are assuming a higher risk by offering home mortgage loans to people with bad credit. That is why they will perhaps be more cautious when supplying you with a loan. Nonetheless, there are loads of alternatives out there for individuals suffering from bad credit.
Bad credit home loans are usually available for individuals with credit scores below 620. If your credit score is over 620, you almost certainly don’t need to be looking for a home loan for people with bad credit. But, if you have a credit score above 620 and at the same time you are delayed on payments on a current mortgage loan, then you definitively need to get a loan like this.
Different Types of Home Loans for People with Bad Credit
There are two classes of home loans for people with bad credit. The first class is bad credit mortgage loans. These loans are evidently for individuals that are aiming to buy homes. As loans involve higher interest rates for individuals suffering from bad credit, these kinds of loans typically hold interest rates of around 10% per annum. The interest rate of your loan will fluctuate according to your exact credit score and records. Often times these loans are also called bad credit new home loans.
The second class of bad credit home loans is home equity loans with bad credit. These loans were planned for homeowners that already have mortgage loans. Habitually, people avail home equity loans when they require additional money. These loans are normally available just for individuals with already established equity into their house. At other times borrowers get these types of loans to deal with expenses or just to make investments or to initiate businesses.
If you don’t meet the requirements for bad credit home loans by yourself, you should try to find a cosigner. This could be rather embarrassing, but it will help you to get a new home. If you were not able to get someone to sign as a cosigner, you will have to make your best effort to improve your credit score.
Best of Luck!
Almost every person needs a home loan sooner or later. If your incoming is reasonable and regular and your credit score is good enough, availing of a home loan is in fact simple. Though, for individuals with bad credit obtaining home loans is not so effortless. Evidently, banks are assuming a higher risk by offering home mortgage loans to people with bad credit. That is why they will perhaps be more cautious when supplying you with a loan. Nonetheless, there are loads of alternatives out there for individuals suffering from bad credit.
Bad credit home loans are usually available for individuals with credit scores below 620. If your credit score is over 620, you almost certainly don’t need to be looking for a home loan for people with bad credit. But, if you have a credit score above 620 and at the same time you are delayed on payments on a current mortgage loan, then you definitively need to get a loan like this.
Different Types of Home Loans for People with Bad Credit
There are two classes of home loans for people with bad credit. The first class is bad credit mortgage loans. These loans are evidently for individuals that are aiming to buy homes. As loans involve higher interest rates for individuals suffering from bad credit, these kinds of loans typically hold interest rates of around 10% per annum. The interest rate of your loan will fluctuate according to your exact credit score and records. Often times these loans are also called bad credit new home loans.
The second class of bad credit home loans is home equity loans with bad credit. These loans were planned for homeowners that already have mortgage loans. Habitually, people avail home equity loans when they require additional money. These loans are normally available just for individuals with already established equity into their house. At other times borrowers get these types of loans to deal with expenses or just to make investments or to initiate businesses.
If you don’t meet the requirements for bad credit home loans by yourself, you should try to find a cosigner. This could be rather embarrassing, but it will help you to get a new home. If you were not able to get someone to sign as a cosigner, you will have to make your best effort to improve your credit score.
Best of Luck!