Prajna Capital |
- What Is This Reverse Mortgage?
- For First Time investors the right Investment options
- Price to earnings multiple vs price to book value
| What Is This Reverse Mortgage? Posted: 27 Feb 2014 04:17 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
One knows that the reverse mortgage is a loan taken against ones home which does not need to be paid back for as long as one lives there. This is available only to senior citizens above 60 Years of age .However one needs to own a residential property whose title is in his/her own name and needs to occupy or reside in that property. The property needs to be self occupied with no other loan against it. In a reverse mortgage operation the owner of the home ,a senior citizen generates cash flows from his home by borrowing against his home and continues to stay in his home. The amounts are obtained as a lump sum or as a regular monthly cash advance like a salary. A certain processing fee is charged while sanctioning the reverse mortgage loan amount which might be 1% of the loan amount sanctioned. The maximum monthly payments made by the bank cannot exceed INR 50000 per month. The lump sum cannot be more than 50% of the total eligibility amount with a ceiling of INR 15 Lakhs. The loan can be availed in a limit up to 60% of the value of the house. The maximum loan amount along with interest is restricted to a Crore of Rupees. The bank might make an assessment of the property based on the circle rate or the market rate, strength of the structure and the general maintenance of the property. Higher quantum of loans in the range of 60% of the value of the property can be obtained if one is around 70 Years of age. The rate of interest charged is around 12-15% per annum. One can avail of this facility as long as one does not sell the house, permanently move out of the house or as long as one is alive. In a typical home loan one needs to have a certain minimum salary to have that home loan sanctioned. In the case of reverse mortgage even if one does not have an income one can qualify for this kind of a loan. How Does Reverse Mortgage Work In India?A reverse mortgage available for a senior citizen above 60 Years is exactly opposite to that of a home loan mortgage. In a home loan mortgage one borrows a lump sum amount and has to pay back these amounts as a series of Equated Monthly Installments over a fixed tenure.The EMI has a principle and an interest component. The home is pledged as security and is seized in case of non repayment of the loan amount. In a reverse mortgage the home or property already owned is pledged provided it has no existing loan against it. The title of the house continues to remain in the name of the owner, in this case the senior citizen.The bank or Housing Finance Company in this case makes a series of payments or cash flows for a fixed period of time which might be for a maximum tenure of 15 Years and in some cases can go up to 20 Years.The payments are received from the bank on a monthly, quarterly, annual or a lump sum basis. The amounts received under the reverse mortgage scheme from the bank are considered as a loan or a liability and no tax is paid on these amounts. These loans are typically fixed but floating rate loans are available which fluctuate in lieu of the market conditions. The home needs to be in the name of the senior citizen and must not be let out or given for rent even on a partial basis. The title of the home is in the name of the senior citizen and he continues to pay the maintenance, tax and repair charges. The reverse mortgage payments are made by the bank typically for a period of 15 Years in the form of a reverse EMI after which the payments stop. Higher the age of the senior citizen more are the amounts required by him to maintain himself and consequently higher is the amount available as a loan to value ratio under the reverse mortgage scheme. The owner and his spouse continue to stay in this house even though he might outlive the tenure of the loan. The interest amounts keep accumulating until the loan is settled. The loan becomes due only on the death of both the senior citizen and his spouse.The reverse mortgage amount becomes due along with the interest component when the senior citizen decides to sell the house or both he and his spouse go to their heavenly abode. When both the borrowers die the bank gets in touch with the legal heirs of the property and gives them the option to settle the pending loan amounts along with the interest component and take possession of the house. If the legal heirs are not able to do so the bank auctions the property and uses the proceeds to collect back the loan amounts along with the interest component and the rest of the amount is given to the legal heirs. The property appreciates with the passage of time as long as the senior citizen maintains it well and concentrates on its general up keep. This is viewed as a major benefit and serves as an incentive for the legal heirs to reclaim the property by paying off the dues as well as an emotional attachment of the legal heirs towards the property. The needs of the senior citizen are well taken care of and he continues to stand on his own feet even in his old age. Under the reverse mortgage mechanism the elderly citizen forces his children to support him in his elderly years. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
|
| For First Time investors the right Investment options Posted: 27 Feb 2014 02:33 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
|
| Price to earnings multiple vs price to book value Posted: 27 Feb 2014 01:37 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
Now that the quarterly earnings season is coming to a close, analysts are revising estimates for company earnings and coming out with new price targets. Future price estimates for stocks are based on valuation parameters such as price-earnings (P-E) multiple or price-to-book value. Both these metrics are important and serve a distinct purpose in stock valuation techniques. So which one should you use?
P-E multiple
Mathematically you can calculate this by dividing the current market price of a stock with the annual earnings per share (net profit divided by the number of shares issued). It indicates whether the price of a company’s stock is moving in line with it expected earnings growth. The P-E of a stock reflects the future earnings growth expectation from a company. When that expectation increases, the stock is expected to trade at a higher P-E and hence, the stock price rises. If a stock is trading at a low P-E multiple, the chances of price rising are high if growth is expected to go up and vice versa. But this is not always the most relevant financial ratio to consider while valuing stocks. P-E needs to be seen in context to industry and what others in the industry are trading at. In some cases, notably the banking industry, earnings are not the most appropriate measure for valuation as banks are involved in both lending and borrowing, and a more critical aspect is net margins and asset quality. Also, in cases where a company is restructuring or coming out of a bad earnings period or losses, P-E may not be the best metric to consider as the denominator may not be reflective of future growth. An important caveat is that the ratio is dependent on the quality of earnings declared which depends to a great extent on the accounting practices used.
Price-to-book value
It is calculated by dividing the current market price with the book value of equity or the book value of assets less liabilities. Ideally, a company should be trading at a stock price which is at least equal to its book value. If it is lesser than that, then it is either because the assets are not earning a good return or the value of assets is overstated. In case the value is overstated its best to avoid the stock. But this requires careful evaluation of the business and balance sheet. As a rule of thumb, the price-to-book value of a company with growing earnings should also be rising. A high price-to-book value can reflect the fact that the earnings expectations from a company are already priced into the stock value. While this is a financial measure which is very useful, relevant and preferred over P-E in certain industries, there are many drawbacks. A company with high debt and proportionately lower value of equity can have a high price-to-book value which is likely to distort matters as the cost of debt is not considered. Moreover, it works best for industries with high capital investment. Lastly, book value of assets is not reflective of market value of assets and high or low cash balances can impact the value without any impact on earnings. The answer really in lies in using both these metrics in context to industry ratios and other operating ratios. In isolation neither of the two is likely to throw up an accurate valuation analysis of a stock.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
|
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