Home Loan Basics ( How to save on home loan and Taxes )

[Vasuki]

Disclaimer - I have complied information and wrote this . Take your CA words for tax & do your own research for more
You can edit if u see anything wrong..
Sorry for grammatical mistakes.




Loan calculator for reference:-

Let's cut short and here is how u can save directly or indirectly after getting the home loan :-
1- Payment of 2-3 extra emi in a year ,when u can afford or get Bonus
2- FLOATING RATE LOANS
when your intrest rate is changed ( yes bank can do it without informing) you need to restructure the loan and increase emi amount by few thousand.
IF repo rate has decreased you can visit bank and get your interest changed to lower % and restructure the loan .
3- prepayment of lakhs or chunk amount in a go ( these directly go to your principal amount by 100% )
Little illustration - suppose if you have

30 lakh loan for 8% at 20 year and your emi is 25093 rs .
You paid 14 emi .
And total intrest payable is 3022368 (30lakh 22 thousand ...)
IF you Pay 1 lakh extra .at 14th month emi ur intrest will reduce by wooping 3 lakh + and now u will only pay 26 lakh in intrest.

why this happened:- it's because you saved 19 year of intrest by paying 1 lakh directly to Principal amount.


Another illustration for point 1 -
Let's suppose you are having struggle and can only save 1 extra Emi per year .
So extra 25k in a year
So now I'm every year 12th month
We will pre pay 25k extra
Now your total 30 lakh intrest comes down to 24 lakh 80 thousand.
You saved 4.4+ lakh in intrest just wait one extra emi pre payment .
What's
More intresting is if u do one extra emi you will complete your 240 month emi home loan in just 204 month.
So u just saved 3 year and 4+ lakh


Illustration 3- if u pay 2 extra emi

You will save wooping 9 lakh and 20 year loan will end in 15 years

But this logic has a flaw - if you pre pay in 1st half of your home loan tenure then u will save more because in first few months & year of any loan
In emi most chunk goes to intrest more and principal less .

Let's see this with example .
If you pre pay 1 lakh in 200th month of 240 month emi
U will just saved 30 k in intrest.

SOONER THE PRE PAYMENT, GREATER THE IMPACT

iN Fixed intrest rate loan - there is penalty on pre payment
but on floating intrest rate there is no penalty on pre payment.


Now we come to 2nd part how to save on tax with home loan
we all know 80c And it's 1.5 lakh benefits

we can claim deduction of principal amount paid in home loan in year

even stamp duty while purchasing home can be claimed under this

BUt let's not get fizzy

you can claim deduction with section 24
on intrest you pay on home loan upto 2 lakh .

Illustration again
Since in first few year u will be paying lot in intrest then u can save 2 lakh claim in section 24 easily

If you have joint owner . Both can claim deduction seperately. Total
3.5+3.5 on taxable income

Some Rbi rules

1- bank will inform you regarding change in intrest rate
2- bank while changing intrest rate should give you options to change from floating intrest rate to fixed interest rate


LETS SAY YOUR INTREST RATE INCREASED .
BANK WILL GIVE TWO CHOICE
1- PAY SAME EMI AND INCREASE TENURE
2- PAY MORE EMI AND SAME TENURE
3 - COMBINATION OF BOTH



Note by @RAMESH BABU N

avoid SIPs of MFs - which give practically spreaking - lesser benefits than what you could save if you pre-pay HL. Or, investing in shares/bonds also need to be reconsidered.

REMEMBER - every pre-prepayment - however small it might be - saves a lot of money in the long run

NOTE:-
Edits will COME WHEN I HAVE TIME TIME



Thanks to @iAmPm

 

[Vasuki]

@Pankhuri @sousnake @Riya @newinnov @prc1990 @pinki @sumanjay @sparkit @dealminer @ihgeek


I will update this post .. but u get the idea how to save
This is applicable to other loans too

 

[dealminer]

@vaibhav111 mod-ji save a chunk on your new car loan 😉

 

[sousnake]

@Pankhuri @sousnake @Riya @newinnov @prc1990 @pinki @sumanjay @sparkit @dealminer @ihgeek


I will update this post .. but u get the idea how to save
This is applicable to other loans too

Thanks sir. One question I recently paid 2L prepayment for my home loan.
There are 2 options
1. Reduce tenure keeping emi same
2. Reduce emi keeping tenure same.

Is there much difference, I choose 1st option to reduce tenure to clear load faster.

 

[dealminer]

Disclaimer - I have complied information and wrote this . Take your CA words for tax & do your own research for more
You can edit if u see anything wrong..
Sorry for grammatical mistakes.



Let's cut short and here is how u can save directly or indirectly after getting the home loan :-
1- Payment of 2-3 extra emi in a year ,when u can afford or get Bonus
2- FLOATING RATE LOANS
when your intrest rate is changed ( yes bank can do it without informing) you need to restructure the loan and increase emi amount by few thousand.
IF repo rate has decreased you can visit bank and get your interest changed to lower % and restructure the loan .
3- prepayment of lakhs or chunk amount in a go ( these directly go to your principal amount by 100% )
Little illustration - suppose if you have

30 lakh loan for 8% at 20 year and your emi is 25093 rs .
You paid 14 emi .
And total intrest payable is 3022368 (30lakh 22 thousand ...)
IF you Pay 1 lakh extra .at 14th month emi ur intrest will reduce by wooping 3 lakh + and now u will only pay 26 lakh in intrest.

why this happened:- it's because you saved 19 year of intrest by paying 1 lakh directly to Principal amount.


Another illustration for point 1 -
Let's suppose you are having struggle and can only save 1 extra Emi per year .
So extra 25k in a year
So now I'm every year 12th month
We will pre pay 25k extra
Now your total 30 lakh intrest comes down to 24 lakh 80 thousand.
You saved 4.4+ lakh in intrest just wait one extra emi pre payment .
What's
More intresting is if u do one extra emi you will complete your 240 month emi home loan in just 204 month.
So u just saved 3 year and 4+ lakh


Illustration 3- if u pay 2 extra emi

You will save wooping 9 lakh and 20 year loan will end in 15 years

But this logic has a flaw - if you pre pay in 1st half of your home loan tenure then u will save more because in first few months & year of any loan
In emi most chunk goes to intrest more and principal less .

Let's see this with example .
If you pre pay 1 lakh in 200th month of 240 month emi
U will just saved 30 k in intrest.

SOONER THE PRE PAYMENT, GREATER THE IMPACT

iN Fixed intrest rate loan - there is penalty on pre payment
but on floating intrest rate there is no penalty on pre payment.


Now we come to 2nd part how to save on tax with home loan
we all know 80c And it's 1.5 lakh benefits

we can claim deduction of principal amount paid in home loan in year

even stamp duty while purchasing home can be claimed under this

BUt let's not get fizzy

you can claim deduction with section 24
on intrest you pay on home loan upto 2 lakh .

Illustration again
Since in first few year u will be paying lot in intrest then u can save 2 lakh claim in section 24 easily

If you have joint owner . Both can claim deduction seperately. Total
3.5+3.5 on taxable income

Some Rbi rules

1- bank will inform you regarding change in intrest rate
2- bank while changing intrest rate should give you options to change from floating intrest rate to fixed interest rate


LETS SAY YOUR INTREST RATE INCREASED .
BANK WILL GIVE TWO CHOICE
1- PAY SAME EMI AND INCREASE TENURE
2- PAY MORE EMI AND SAME TENURE
3 - COMBINATION OF BOTH

NOTE:-
Edits will COME WHEN I HAVE TIME TIME

Doc"Save it" 🫡

 

[Vasuki]

Thanks sir. One question I recently paid 2L prepayment for my home loan.
There are 2 options
1. Reduce tenure keeping emi same
2. Reduce emi keeping tenure same.

Is there much difference, I choose 1st option to reduce tenure to clear load faster.

1 is sensible if u save much
Else go with combination.of both

Sure lesser rhe tenure lesser the intrest.

 

[shivamk]

Galat line mei aa gye doc sahib, CA krni thi

 

[Vasuki]

Doc"Save it" 🫡

I didn't understand?

 

[dealminer]

I didn't understand?

I was quoting a new alias (DocSaveit) after seeing this thread. Consider it as an admiration Doc. 😉

 

[dealminer]

Galat line mei aa gye doc sahib, CA krni thi

Sahi hai bhai, saving life & saving money 😆

 

[prc1990]

@Pankhuri @sousnake @Riya @newinnov @prc1990 @pinki @sumanjay @sparkit @dealminer @ihgeek


I will update this post .. but u get the idea how to save
This is applicable to other loans too

Prepayment+5% increase in EMI+Investment with 15% return? Ye wala story?

 

[prc1990]

Thanks sir. One question I recently paid 2L prepayment for my home loan.
There are 2 options
1. Reduce tenure keeping emi same
2. Reduce emi keeping tenure same.

Is there much difference, I choose 1st option to reduce tenure to clear load faster.

If you reduce tenure, your EMI goes up. If your EMI gets reduced, tenure gets extended assuming interest rate is same.

 

[Vasuki]

Prepayment+5% increase in EMI+Investment with 15% return? Ye wala story?

No , on how to save money while buying home loan .
Maybe that will require seprate thread.

 

[Manju09]

Took a home loan of 27 Lac in 2020 with around 25k of emi. Outstanding is still around 25 Lacs! I am in bit of a dilemma whether to prepay some amount yearly or continue the same just by claiming tax benefits (Old regime with Income of 10 Lacs). For this FY my interest component is 2.25 Lacs & principal is 68000.

Please guide me which will be better in my case. @DocFixIt

 

[sousnake]

Took a home loan of 27 Lac in 2020 with around 25k of emi. Outstanding is still around 25 Lacs! I am in bit of a dilemma whether to prepay some amount yearly or continue the same just by claiming tax benefits (Old regime with Income of 10 Lacs). For this FY my interest component is 2.25 Lacs & principal is 68000.

Please guide me which will be better in my case. @DocFixIt

Similar situation - ~27L loan in Nov 2020. EMI - 22.5k.
I paid 2L this year, it reduced principal amount from ~25 to ~23L. This reduced my tenure. So anyway I want to complete my loan asap.
Still I believe next year interest will be around 2L which is max you can get tax benefit so it works.

 

[Vasuki]

Took a home loan of 27 Lac in 2020 with around 25k of emi. Outstanding is still around 25 Lacs! I am in bit of a dilemma whether to prepay some amount yearly or continue the same just by claiming tax benefits (Old regime with Income of 10 Lacs). For this FY my interest component is 2.25 Lacs & principal is 68000.

Please guide me which will be better in my case. @DocFixIt

Since 4 year has passed u won't save significant in interest ..
But stil if u pay
1 lakh extra u will can expect saving of 50-80k .( Just rough figure.. u will save on tax too

The early u pay more u gonna save ..

For accurate calculation ( ball park ) share your tenure too

 

[Manju09]

Since 4 year has passed u won't save significant in interest ..
But stil if u pay
1 lakh extra u will can expect saving of 50-80k .( Just rough figure.. u will save on tax too

The early u pay more u gonna save ..

For accurate calculation ( ball park ) share your tenure too

It's 20 years bro, still 17 years remaining.

 

[Vasuki]

It's 20 years bro, still 17 years remaining.

If u do 2 lakh pre payment u save approx 2+- year on repayment .

If u make 4 u save 50-55 month .

If u start doing 1 lakh extra / year u will save
Maybe 45-48 .

Also watch out at election .if same gov come they will reduce repo rate bcz in last quater itself internal consumption was lesser ..
It was export which lead to GDP growth

 

[HumorSimpson]

These days, when one has to take loan on home (pawning) to pay hospital bills, you are the only doctor who is taking care of wealth in addition to health.

 

[HumorSimpson]

It would be better if you rename the title to home loan basics. Else some might think, for 101 degree temperature, the treatment costs a loan on home.