ASSIGNMENT-4

BUILDING ECONOMICS

SUBMITTED TO
AR. MEGHNA VIJ

SUBMITTED BY
D.L.PRIYAMADA
ENR NO: A51404018001
B.ARCH, 8TH SEM

DATE OF SUBMISSION: - 10/05/2022

Topic: PROJECT FINANCING -

1. What is Interim and Permanent Finance? Explain.

Ans:- Interim financing, also called bridge financing or a bridge loan, is often used by a
buyer who is selling a home to buy another, but the sale of the first home cannot be
completed before the purchase of the second home must be completed.
 Interim financing is used to cover the remaining purchase price of the second home
until the proceeds of the first sale are received.
Advantages Disadvantages
Interim financing may help prevent Relatively short terms
losing of chance to purchase or sale of
property.
In contrast to traditional loans, a bridge High interest rates
loans have a faster application, approval
and funding process
Most of the interim financing does not Large origination fees.
provide repayment penalties.
Permanent financing (5-25+ years) is a long-term loan that works similarly to debt or long-
term equity financing. These types of loans are primarily used to buy essential fixed assets
like factories and machines.
 This type of long-term financing is most suitable for businesses that may not be able
to pay principle back right away.
In long-term debt financing, a third-party lends money to borrowers to allow them to
purchase certain assets or to finance a specific project. In exchange for the funds they
offer, the borrower will have to put the company’s assets on the line. In some cases, the
lender may be given partial ownership in the company, so business owners can rest
assured that they will have the funds needed to make the business a success.

2. What is Equity and Debt? Differentiate between them.

Ans:- Equity:-
 It is the source of permanent capital. It is the owner’s funds which are divided into
some shares.
 By investing in equity an investor gets an equal portion of ownership in the company.
 Companies issue equity to raise capital
Debt:-
 Money raised by the company in the form of borrowed capital is known as Debt.
 They are the cheapest source of finance as their cost of capital is lower than the cost
of equity and preference shares.
 Funds raised through debt financing are to be repaid after the expiry of the specific
term
Basis for comparison Debt (Borrowed Fund) Equity (Own Fund)
Definition Funds owed by the company Funds raised by the
towards another party company by issuing shares
Uses For purchasing assets that For estimating potential gain
are more valuable than a in any asset transaction and
person’s current ability to for use as purchasing power
pay for them.
Term Comparatively short term Long term
Types Term loans, debentures etc Shares and stocks
Status of holder They are known as They are known as
“Lenders” “Proprietors”

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Topic: PROJECT FINANCING -

Risk Less High

Calculation Amount of equity- value of Value of asset-debt
asset

3. List some financial institutions related to home loans and explain their importance.
Ans:-
1. HDFC Housing Finance offers different types of home loan products such as plot
loan, rural housing loan, home improvement loan, and home extension loan among
others. The interest rates for home loan starts from 8.55%. The home loan schemes
are available for salaries and self-employed resident Indians in the range of 18-65
years.
2. LIC Housing Finance offers home loans at attractive interest rates for Indian
residents, Non-Resident Indians (NRIs), and pensioners. You can avail loan for
purchase, construction, extension, house repair, plot purchase, and top up loan. LIC
Housing Finance offers benefits such as flexible repayment periods, quick loan
processing, zero processing fee, zero pre-closure charges, and no partial pre-payment
charges.
3. L&T Housing Finance offers home loan at attractive interest rates for construction,
house improvement, and house extension. The loan repayment tenure is up to 20 years
and the amount ranges from Rs.3 lakh to Rs.10 crore. You can avail home loans up to
90% the property value. L&T Housing Finance offers benefits such as quick and
transparent loan processing, instant online loan approval, attractive interest rates,
minimal documentation, multiple repayment options, and zero pre-payment charges.
4. PNB Housing Finance offers home loan at competitive interest rate for resident
Indians as well as non-resident Indians. It offers home loans under different schemes
that are aimed at government employees, general public, and others.
5. DHFL provides home loans that can be used to buy a new house/flat, construct a new
house, to renovate or extend an existing house, or to buy a plot of land for the purpose
of home construction. Both salaried and self-employed individuals are eligible for
home loans from DHFL. Eligibility and quantum of loan can be increased by adding a
co-applicant who also has a regular source of income.
6. Indiabulls Housing offers instant home loan approvals at competitive interest rates
for a tenure of up to 30 years. It offers benefits such as zero pre-payment charges,
flexible tenure options, and zero pre-closure, among others. The interest rate ranges
from 8.80% to 12.00% p.a. The processing fee is 0.50% to 1% of the loan amount.
7. IIFL Housing Finance Limited offers home loans with attractive interest rates that
start at 8.45% p.a. onwards. The maximum repayment tenure is 20 years. Any Indian
citizen between the age of 18 and 75, both self-employed and salaried, as well as
Non-Resident Indians (NRIs) are eligible for the home loan. The company provides a
wide range of home loan products such as balance transfer, home improvement, etc.
There is also a special loan product, Swaraj Home Loan, for those individuals without
formal income documents.
8. GIC Housing Finance Limited provides home loans that range from individual
housing loans and composite loans to balance transfer, home extension, and
renovation/repair loans. Interest rates start at 8.50% p.a. There is free accidental death
insurance and free property insurance provided along with the home loan. Loan
application and approval can be done online with minimal documentation.
Importance of financial institutions related to home loans
 Banks pass on interest rate changes faster to borrowers
 Banks offer overdraft facility

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 Banks prefer high credit scores but offer attractive interest rates
 Allow you to grow your business
 Can keep full control of our company
 No interference from the banks (can have flexibility to change our plans)
 May offer extra services..

4. What are the different types of mortgages? Explain.

Ans:-
• A mortgage, also referred to as a mortgage loan, is an agreement between you (the
borrower) and a mortgage lender to buy or refinance a home without having all the
cash up front.
• This agreement gives lenders the legal rights to repossess a property if you fail to
meet the terms of your mortgage, most commonly by not repaying the money you’ve
borrowed plus interest.
Parties involved in Mortgage:
Lender
• A lender is a financial institution that loans you money to buy a home. Your lender
might be a bank or credit union, or it might be an online mortgage company.
• When you apply for a mortgage, your lender will review your information to make
sure you meet their standards. Every lender has their own standards for who they’ll
loan money to. Lenders must be careful to only choose qualified clients who are likely
to repay their loans. To do this, lenders look at your full financial profile – including
your credit score, income, assets and debt – to determine whether you’ll be able to
make your loan payments.
Borrower
• The borrower is the individual seeking the loan to buy a home. You may be able to
apply as the only borrower on a loan, or you may apply with a co-borrower.
• Adding more borrowers with income to your loan may allow you to qualify for a
more expensive home.
Co-Signer
• Sometimes, because of a negative credit history or no credit history, a lender may ask
a prospective borrower to find a co-signer for the mortgage. This is also synonymous
with a co-borrower. A co-signer isn’t merely vouching for your character.
• They are entering into a legally binding contract that will hold them responsible for
paying for the mortgage with or without any rights of ownership, should the borrower
default on the loan.

There are many types of home loans. Each comes with different requirements, interest rates
and benefits.
• There are two main categories of mortgages: 
• Non-conforming loans
• Conforming loans.
Non- Conforming loans
• In addition to conventional loans, most private lenders also offer government-backed
mortgages.

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• These mortgages are geared toward helping first-time, low- to median-wage earners
and those with past credit difficulties buy a home. These are loans that lenders might
deny without government insurance.
Conforming loans
• The phrase “conventional loan” refers to any loan that’s not backed or guaranteed by
the federal government. Conventional loans are often also conforming loans.
• The term “conventional” means that a private lender is willing to make the loan
without government support, and “conforming” means that the mortgage meets a set
of requirements defined by Fannie Mae and Freddie Mac – those are two government-
sponsored enterprises that buy loans to keep mortgage lenders liquid, so they can
continue making loans.