HomeLoan

Budget - Impact on Home Loans

The current Budget has extended the same tax benefits for one more year.

You can save significant part of your tax liability if you have taken a home loan. Here's how it works:

Interest paid on the home loan
As per Sec 24(b) of the Income Tax Act, 1961 a deduction up to Rs. 150,000 towards the total interest payable on the home loan towards purchase / construction of house property can be claimed while computing the income from house property. (The deduction stands reduced to Rs 30,000 in case of loans taken prior to March 1, 1999). The interest payable for the pre-acquisition or pre-construction period would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed.

Please remember that in case of self occupied property, this deduction is allowed only for one such self - occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).

Principal repayment of the home loan
As per the newly introduced Sections 80C read with section 80CCE of the Income Tax Act, 1961 the principal repayment up to Rs. 100,000 on your home loan will be allowed as a deduction from the gross total income subject to fulfillment of prescribed conditions. Let us consider a hypothetical example.

Your taxable Income: Rs 5,50,000

Principal repayment for the same year: Rs 1,10,000 and Interest payable for the year : Rs 1,60,000

Total Deductions allowed: Rs 2,50,000 (Rs 1,50,000 towards interest payable & Rs 1,00,000 for principal repayment of the loan)

Thus, your taxable income will reduce to Rs 3,00,000 ( Rs 5,50,000 - Rs 2,50,000 ).

Use the Tax Savings Tool (on the left) to ascertain the proper tenure of the loan you must take to minimise your post tax cost of the loan. If you have already taken a loan, it could be useful to refinance the same today at a lower interest rate and a higher tenure using the Refinance Tool.

The issue of Stamp Duty on Registered Mortgage Deed

Normally the lenders will ask you to create a registered mortgage deed on the property which they will retain with them as a security against your loan. As this is a legal document, the prevalent stamp duty needs to be paid to the State Govt. In the state of Maharastra, this duty is about Rs. 5000 for a loan below Rs 5 lacs and about Rs. 35000 for a loan above Rs 20 lacs. Some lenders like HDFC do not ask for the Registered Mortgage Deed but only take the original Title Papers of the property as a security. Thus customers of HDFC do not pay the stamp duty to the respective State Governments.

Some States have taken this matter to court as they are losing revenue. Some of the lower courts have ruled in favour of the State Governments and asked HDFC to make good the Stamp Duty for all past customers along with interest. The matter is now pending with the Supreme Court. We feel that the ruling will again go in favour of the States. We are not sure if HDFC would be asked to pay up a large amount along with interest, which may ultimately be passed on the the existing customers. Any new customers going to such lenders must be aware of the risk of a legal ruling that may result in a future cash payment along with interest.

Flexible Loan Repayments

If you are a salaried employee, banks look at your current salaries while deciding how much they can lend you. The fact is that your salary can only increase as time goes by and your ability to repay larger loan amounts will only get better. Some banks now offer a flexible repayment plan that allows you to pay larger portions of the loan in the later years. Your initial monthly payments are kept low. IDBI Bank, HSBC and Citibank offer Flexi repayment option loans. To read more about this click below.

Flexi repayment loans are now available

Special features of product offerings:

Standard Chartered Bank has launched the Home Saver Account . Along with the Home Loan, your will get a FREE current bank account into which you may deposit your monthly salary. The EMI for the loan will be automatically reduced from your account. The excess balance in your savings account will be saved interest that will be adjusted against your future EMI payments. The bank claims that the effective interest rate gets reduced by upto 45% because of this scheme.

One can deposit and withdraw your money (salary and other income) whenever you need, without any charges

Interest is calculated on daily balance and applied monthly

Citi Bank offer loans with no guarantors. Most banks require that you present a guarantor who will back you up if you default on your loan repayment. It can often be embarrassing to ask friends to stand guarantor as most banks do not accept relatives as guarantors.

Citibank gives home loans upto 90% of the property value, the highest from any bank ( only IDBI Home Finance Ltd. matched this offer)

Citibank offers a flexi-savings account to reduce your cost of borrowing. The bank will automatically open a Saving Account from which you can give standing instructions to deduct the EMI payments for the loan. You can then prepay the loan at any point in time and be given instant credit for the same, in case you get a large lump-sum annual bonus from your employer. Should you require money in an emergency at any point you can avail of a over draft on this savings account at an interest rate that is the same as that on your Home loan. This works out much cheaper than taking an over draft on a normal savings account

Dewan Housing Finance and LIC Housing Finance Ltd. offers consumer loans to their existing Home Loan customers at a discount to market rates. The customer has to be a housing loan borrower for the period not less than 6 month with a good repayment record

FREE TRIPLE PROTECTION PLAN in the form of Loss job of customer, Personal accident life cover and Property cover against natural calamities

Axis Bank gives free property and personal accident insurance cover along with the loan. It offers:
    Attractive Interest rates
    Balance transfer facility is available
    Door step service
    Option to choose between Fixed and Floating rate of interest

HDFC (Housing Development and Finance Corporation) offer Flexible (Customised) Repayment Schemes, keeping in mind the fact that each individual has a unique problem requiring unique solutions, HDFC has developed various repayment options like Step Up Repayment Facility, Flexible Loan Instalment plan , Balloon Payment Scheme and Acceleration of EMI.

Pari Passu/ Second Mortgage Arrangements: HDFC has a tie-up with a large number of Public Sector Organizations and banks which enables us to offer loans to your employees with the flexibility of their spouse also availing a loan from his/her own employer

Safe Document Storage Facilities: HDFC has state of art storage facilities, which are theft and fire proof, at various locations where loan and property documents are stored. In this way valuable documents are stored safely over the period of the loan and are released almost immediately after a customer repays his loan

A customer, after availing of a loan can approach HDFC anytime thereafter to increase the Equated Monthly Instalment which will help him repay the loan faster.

Home Conversion Loan offered to its existing customers who are interested in moving to a new house. Through this scheme customers can apply to have their existing loan transferred towards the purchase of the new home. Customers may also apply for an additional loan amount for the purchase of the new house. This gives the customer the option of selling their existing house, if they wish to, without having to repay their old loan

The fixed rate loan can be converted to floating without any penalty charges. However, you will be charged 2% if you refinance the loan from another company

Hudco will waive the last 2 EMI payments on the loan if the customer has a perfect repayment record with no bounced cheques. The loan amount initially taken must exceed Rs. 5 lacs and no prepayments where to have been made during the tenure of the loan. This is not available for the Floating rate loan.

There is a discounted start-up fee for Government employees. The Administrating fees stand reduced from 0.7% to 0.5% only.

Free triple insurance - property cover, earthquake cover and personal accident cover. given free along with the loan ( not available for the Floating rate loan)

You can prepay the entire loan in any year without any prepayment penalty. Each prepayment has to be atleast 10% of the outstanding loan. Howvere, the floating rate loan has a 1% prepayment penalty.

HSBC offers Smart Home which enables to save interest and tenor. It can be operated just like a normal bank account. One can deposit money and withdraw the same from the account anytime free of cost. The account is used to deposit extra savings which can save interest on Home Loan. It is because the principal on which loan interest is calculated, is the principal outstanding minus the savings one has deposited in the accout every month over and above the EMI.

ICICI launches a 25 year tenure home loan, the longest available

ICICI also launches a variable rate loan with a monthly rest basis versus the regular fixed rate loan that is on an annual rest basis

No guarantors are required for loans upto 20 years in most cases

No pre payment fees for any part payment as long as the loan is not fully retired, else 2% charge on pre paid amount. You can repay upto 33% of the outstanding loan in any year without paying penalty.

Free personal accident insurance

Sanction approval without having selected a property

Special 100% funding for select properties

Higher eligibility for self-employed professionals through segment-specific schemes

Kotak Bank offers flexi home loans / FD linked home loan
Flexi Home Loans : You get protection against interest rate volatility during a 3 year period and also the benefit of any rate decrease at the end of each 3 year period. So you get the certainty of a fixed interest rate, along with the flexibility of a floating rate. The interest remains unchanged for 3 years, at the end of which it is reset at prevailing index rate and gets fixed for the next 3 years. This cycle continues till the end of the loan tenure. The impact of any change in the index rate is given after the three year period.It also provides the opportunity of lower interest rate compared to conventional fixed rate loans.

FD linked home loans : A unique offering, where the FD linked home loan is linked to the Bank 1 year Retail Fixed Deposit Rate instead of the Retail Prime Lending Rate(RPLR). So, here the home loan interest rate changes only if the linked Fixed Deposit rate changes. To avail this facility you don't need to maintain a Fixed Deposit with the bank to avail this facility.This home loan option is available with the Flexi home loan as well as with the conventional floating rate home loan.

Kotak bank offers :

Attractive interest rates
Free Personal Accident insurance
Simple documentation with speedy processing

LIC Hsg Finance Ltd. will lower quoted interest rate by 0.5% for loans covered by a life insurance cover that is taken from LIC. The life cover must be taken for a minimum period that covers the tenure of the Home Loan

SBI (State Bank of India) offers Home Loans with no start-up costs. Most banks charge as high as 2% as processing and administrative fees

Prepayment is 2% if the entire loan is pre paid else it is 0%. Avoid this penalty by prepaying upto 99% of your loan if need be

IDBI Home Finance Ltd. offers Home Loans upto 90% of the value of the property and 100% in some new projects. Prepayment penalty of 0% for upto 4 prepayments in each year. The entire loan can be retired without incurring any penalty.Free accident and property insurance.

IDBI Bank (Industrial Development Bank of India Limited) offers special schemes.
    Flexibility of choosing between Floating or Fixed interest rate
EMI on monthly reducing balance
    Personalised doorstep service
    Simple documentation
Legal and technical assistance
    Balance transfer facility
    Reassessment and adjustment of applicant's loan eligibility in case of change of income and residence status.

Special Home Loan with Life Insurance for you ::

You can avail of a special insurance cover on your home loan for a small premium. For most of us, buying a house is an important milestone in our lives. IDBI Bank, understand your concerns. Home Loans are now accompanied by a specially-designed insurance cover. So even if calamity strikes, your family needn't worry about the loan.