When Does Your Home Loan Tax Deduction Get Revoked

A number of Sections under the Income Tax Act, 1991 falls under the category where one can claim deductions. For instance, the deduction claimed under the heads of investments or expenses that are incurred during that particular financial year.

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These home loan tax deductions help in decreasing the tax liability of an individual and by reducing their taxable income. But you must pay attention to the lock-in periods to such deductions. Otherwise, the amount of deduction claimed can further be revoked.

Let’s take a look at what are the home loan tax deductions? What are the heads under which one can claim such deductions? What are the lock-in periods?

Read- When Does Your Home Loan Tax Deduction Get Revoked

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Home Loan Tax Benefit – Is It Worth it?

The home loan includes attractive tax benefits, which has been a welcome advantage. But, to take a home loan with the prime objective of enjoying tax benefits is something which needs a bit of assessment.

For this let’s first look into the available deductions for a home loan;

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a) The interest payment of the home loan is exempt u/s24, up to Rs. 2 lakhs in a year if the property is self-occupied. In case the property is rented then the exemption is available up to Rs. 2 lakhs net of taxable rental income.

b) The principal repayment of the home loan is available for deduction u/s 80C along with various other payments like LIC, FD, PPF, tax saving MF etc., for the amount up to Rs. 1.5 lakhs.

The stamp duty and registration charges are also exempt from tax.

Considering the rising prices of real estate in the present scenario, the government has made attempts to make home loan cheaper. But still, there are high chances that your loan amount could be so high that the interest exemption limit of Rs. 2 lakhs fall short. Also, the principal repayment deduction is clubbed with other payments, thus, it is definitely not able to cover for whole payment.

Therefore, taking a home loan is beneficial when you are facing a shortage of funds, in case you have enough funds for the desired property than going for a home loan will not give you enough returns on your investment.

READ:- Tax Benefit on Home Loan – Is It Worth it?

How to Keep Away from flat interest rate in case of home loan

A home loan is an amount borrowed by individuals from banks or other financial institutions for construction, purchase or repair of a residential property. Lenders give the loan for a fixed period of time and charge interest on the amount borrowed, which has to be paid by the borrowers along with the principal amount. The interest rate on the loan can be calculated in two different ways – Flat interest rate and reducing balance interest rate. A flat interest rate means that the interest component on the loan will remain the same throughout the tenure. The interest will be calculated on the entire principal amount until the tenure comes to an end. It is calculated using the following formula:

Interest Payable per installment = (Original Loan Amount * No. of Years * Interest Rate p.a.)/ Number of installments.

Image result for home loanThe interest payable is generally more when it is calculated using the flat interest rate as compared to reducing balance interest rate. A flat interest rate is a gimmick by lenders to attract customers into taking a loan without making them understand about the entire scheme. Consumers who are in immediate need of money fall for such schemes and end up paying higher amounts as interest. Hence, always ask the lender about the interest rate calculation method before signing off the final loan agreement. You can also spend a little time in the calculation of the total interest payable and choose accordingly. Also, always take into account costs like processing fees when you are comparing loans from lenders.

 

Which One is Better: Fixed & FLoating Home Loan Rates

Getting a home loan has become very easy nowadays. However, it involves a series of decision which can have an impact on your life for years or even decades. The first and foremost thing that will bother you is whether to go for a fixed interest rate or floating interest rate. A fixed home loan interest rate remains the same throughout the loan tenure, whereas a floating rate keeps on changing as per market conditions.

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A fixed interest rate is a good option for those who are good at budgeting and want a fixed repayment schedule. One of the major disadvantages of fixed interest rates is that it is usually 0.5-2.5% points higher than the floating rate home loan. On the other hand, a floating rate home loan is cheaper than the fixed interest rates. But, you can only benefit by choosing a floating rate home loan if the interest rate does not exceed 11.5%. You also have the option to choose semi-fixed interest rate. In this kind of loan, the interest rate remains fixed for the first few years and then it changes to a floating rate. The type of interest rate you choose depends on several factors. So, if you expect interest rates to increase in the future, you should opt for a fixed interest rate home loan. If rates have been on the rise over the past few years and the prediction is for a fall in loan interest rates soon, then you must opt for floating interest rate to reap the benefits.

How to Repay your home loan faster

Buying a home is a dream for many of us, but due to the high prices, only a few can afford to pay such a whopping amount. In such situations, buyers turn to banks for home loans. However, opting for a house loan is not that easy as the EMIs last for at least a decade and add to the burden for a majority.  But, don’t worry, we have listed a few tips that can help you to repay your home loan faster. You can opt for a higher EMI. It will help to reduce the loan tenure which means that the total interest that you’re supposed to pay to the lender also goes down. Further, home loan buyers also have the option to prepay the entire or part of the outstanding loan amount. Windfalls like bonus or maturity proceeds from insurance policies should be used to prepay a part of the home loan from time to time.

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Next option is that you can opt for a balance transfer. Under this option, you can transfer the entire outstanding loan amount to another lender at a lower rate of interest and other better terms and conditions. Lastly, you also have the option to maximize the down payment. Making a higher down payment when obtaining a home loan can reduce the principal amount. A lower principal amount means lower interest and EMI payments. So, in case you are struggling with debt-burden, take into account the above-mentioned steps to reduce your home loan interest rate burden. Also, don’t miss your EMI payments as it can severely affect your credit score.

 

Is taking a housing loan on this festival season a good idea?

With the increase in the price of the property, it has become almost impossible to buy a home entirely on your savings. And, this is where home loans come to your help. Getting a home loan is the best way to fulfil your dream of owning a house. And the best time of the year to apply for a home loan is during the festive season. We have listed a few reasons suggesting why you should take a home loan during this festive season.

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Due to various customs and beliefs, people prefer to make huge investments during Diwali. Therefore, banks offer a range of deals and offer to make home loans look attractive. Not only banks but builders also come up with incredible offers to attract customers. During Diwali, getting as huge as a ten percent discount from the builders is quite common. If the festive season ends, there are chances that the banks will do away with festive offers and increase the home loan interest rates. So, it’s better to apply during the festive season.

Lastly, don’t get sidetracked with attractive offers. When searching for a home loan, it is important to pay attention to three attributes, interest rates, tenure, and fees. These factors will decide how much you will have to pay every month once the festive season ends. Therefore, instead of getting distracted by the seemingly attractive offers, evaluate your options carefully to make a well-informed decision. So, hurry up and grab the deal.

Additional Reading:-Why taking a home loan on this festival season is a good idea?

Top Up Loan vs. Personal Loan: Which is Better

An additional loan amount availed on your existing home loan is referred to as a top up. If you have recently availed a home loan and you require funds for renovation or extension of your house, then you have two options either you can avail top up on existing home loan or you can apply for a personal loan.

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Top up loan is a better option because its approval and disbursal process is quick as you are an existing customer of the bank. Top up loan is available for a longer tenure i.e. the remaining tenure of your home loan, whereas personal loan can be availed only for a period ranging up to 5 years. Interest rate on top-up loan is low in comparison to a personal loan. Amount of loan in top-up loan is decided based upon your existing home loan outstanding and in personal loan you can apply for loan amount as per your requirement. You should opt for a top-up loan if you require funds immediately also your fund requirement is not high. On the other hand if your fund requirement is high and you can bear the burden of extra resultant EMI, then you can apply for a personal loan.

RELATED: Top Up Loan vs. Personal Loan: Which Option Should You Back