Bank Theory

Additional Reading Material on Home Loans and Property Valuation Additional Reading Material on Home Loans and Property Valuation Author: Bank Theory Introduction to Home Loans Home loans are financial products provided by banks and financial institutions to help individuals purchase real estate. They are long-term loans that typically require the borrower to pay in monthly installments, with an interest rate applied to the loan amount. Key factors in determining eligibility for a home loan include the applicant's income, credit score, and the property value. The property serves as collateral for the loan, and if the borrower defaults, the lender has the right to take possession of the property. Valuation of Real Property Real property valuation is the process of determining the current market value of a property. This value is important for various reasons, inc...

Home Loans & Financial Calculations - Bank Theory Additional Reading Material on Home Loans & Financial Tools Author: Suman Biswas (Bank Theory) 1. Mortgage Advice Mortgage advice helps borrowers choose the right home loan product based on income, credit score, and future financial goals. Advisors assess repayment capacity, suggest fixed or floating interest rates, and analyze risk appetite. 2. Home Information Packs (HIPs) HIPs include vital documents like Energy Performance Certificates, property title documents, and local authority searches. They ensure transparency for buyers in property deals. 3. Time Value of Money (TVM) TVM is a key concept in finance, indicating that a sum of money today is worth more than the same sum in the future due to earning capacity. This is the basis for discounting and compounding calculations. Formulas: Future Value (FV) = PV × (1 + r) n Present Value (PV) = FV / (1 + r) n 4. ...

Home Loans, Housing Finance & Tax Planning - Bank Theory Additional Reading Material on Home Loans, Housing Finance and Tax Planning 1. Home Loans Overview Home loans are secured advances provided by financial institutions to individuals for the purchase, construction, renovation, or extension of residential properties. These loans are generally long-term, repayable over 10 to 30 years with fixed or floating interest rates. Example: Mr. Sharma takes a home loan of ₹50 lakhs at an interest rate of 8.5% p.a. for 20 years. The EMI will consist of both interest and principal components, and over time, the principal component increases while the interest component reduces. 2. Housing Finance and Tax Planning Housing finance plays a dual role in meeting shelter needs and enabling tax planning. A borrower can optimize tax liability using tax deductions available under the Income Tax Act for both the interest and principal portions of the EMI...

Home Loans: Appraisal, Documentation, Monitoring & Fraud | Bank Theory Additional Reading Material on Home Loans Lender’s Appraisal Procedure The lender's appraisal procedure ensures that a borrower's request for a home loan is viable and secured. This includes evaluating repayment capacity, the property's legality, market value, and documentation compliance. Application Form The borrower submits a loan application with personal, income, and property details. Documents to be Submitted Identity proof and address proof Income proof (Salary slips, ITRs) Bank statements Title deed of property Property valuation and legal reports Loan Application Received Through Agent Applications sourced by agents require additional due diligence to prevent misrepresentation or fraud. Appraisal of Loan Request This involves evaluating: Income and repayment capacity (DSCR, EMI/NMI ratio) Loan-to-value (LTV...

Other Financial Services Provided by Banks - Bank Theory Other Financial Services Provided by Banks 1. Distribution of Third Party Products Banks often act as corporate agents for selling third-party products such as mutual funds and insurance policies. This generates fee-based income and helps banks diversify their revenue. 2. Mutual Fund Business Banks distribute mutual fund schemes of various Asset Management Companies (AMCs). They earn a commission (upfront and trail) based on the investment value. Example: If a customer invests ₹5,00,000 in a mutual fund through a bank and the bank earns a trail commission of 0.50% per annum, the bank earns ₹2,500 yearly from that customer. 3. Insurance Business Banks sell life, general, and health insurance products as corporate agents or brokers. Bancassurance is a key strategy here. 4. Social Security Insurance Schemes Banks promote schemes like Pradhan Mantri Je...

Tax Planning - Bank Theory Tax Planning 1. Classification of Tax Structure in India India follows a dual tax structure comprising: Direct Taxes (e.g., Income Tax, Corporate Tax) Indirect Taxes (e.g., GST, Excise, Customs Duty) 2. Financial Year, Assessment Year & Previous Year Financial Year (FY): Period from 1st April to 31st March when income is earned. Assessment Year (AY): The year following the Financial Year when the income is assessed and taxed. Previous Year: Same as Financial Year – the year in which income is earned. 3. Residential Status The residential status determines the scope of taxable income. It is categorized into: Resident and Ordinarily Resident (ROR) Resident but Not Ordinarily Resident (RNOR) Non-Resident (NR) 4. Important Terms Gross Total Income: Aggregate income before deductions. ...