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

 

[shivamk]

Also try to look into overdraft/max gain variant of the home loan which many of the psu banks offer like sbi, bob, union bank, which will in turn help in reducing your overall interest paid to the bank.

I checked out the OD backed HL on some bank websites. Interest rates are a bit higher but that's probably due to the flexibility to sweep in and out the money. Effective returns might turn out to be better since HL interest will lower down

 

[helloworld]

Didn't get this. Can you please explain?

house loan needs submission of sale deed, which should contain loan borrowers name in it. So, the property now owned by you and your father, in future if any changes needed or extra amount etc. need signatures from both of you.

this is general process from all banks and might vary depends on bank rules, general idea purpose.

As mentioned, if you're solely not eligible for required loan amount then only go for joint to avoid inconviniences, but thats upto you.

 

[rakesh43]

Hi folks need some advice.

1. Which bank(s) would be good to take HL? PSUs or Private banks. Which ones offer the least interest rate?

2. Should I become a joint owner in the loan with my fatheror should I plan to save taxes using HRA/rent way? If I become a joint owner initially is there any chance to use rent way to save taxes later.

My CIBIL: 770+ (only CCs)
Other person's CIBIL: 740+ (car loan, some commercial loan history, all paid)

You can go with SBI Or any other PSUs. No hidden charges would be there.

You can be a joint applicant in loan with your father even if either of you is not the registered owner of property. Talk to the banker and they can explain it to you

 

[shivamk]

house loan needs submission of sale deed, which should contain loan borrowers name in it. So, the property now owned by you and your father, in future if any changes needed or extra amount etc. need signatures from both of you.

this is general process from all banks and might vary depends on bank rules, general idea purpose.

As mentioned, if you're solely not eligible for required loan amount then only go for joint to avoid inconviniences, but thats upto you.

Got it, thanks for explaining.
In case the property is owner only by my father, can I still add up as joint owner?

 

[shivamk]

You can go with SBI Or any other PSUs. No hidden charges would be there.

You can be a joint applicant in loan with your father even if either of you is not the registered owner of property. Talk to the banker and they can explain it to you

Thanks for clarifying. Will reach out to PSU banks in my city and update here with the offerings they pitch.

 

[financetherapy]

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

Is this correct? I have a joint HL with my father and mother.
My father is earning so can me and him both claim the deduction under Section 24 for 2L on HL interest?
My HL interest roughly is 4L and principle is 1.7L per annum.
Thanks in advance

 

[Vasuki]

Is this correct? I have a joint HL with my father and mother.
My father is earning so can me and him both claim the deduction under Section 24 for 2L on HL interest?
My HL interest roughly is 4L and principle is 1.7L per annum.
Thanks in advance

Yes talk to the CA for more

 

[Hemang]

Is this correct? I have a joint HL with my father and mother.
My father is earning so can me and him both claim the deduction under Section 24 for 2L on HL interest?
My HL interest roughly is 4L and principle is 1.7L per annum.
Thanks in advance

Yes you both can claim home loan interest deduction equally. So 2 lac each you can claim as you told that roughly annual interest outgo is 4 lacs.

 

[RAMESH BABU N]

Ideally in such joint-loan scenarios, the repayments should come both (just in case, the ITD asks).

So, we normally ask them to open a SB JOINT account into which funds are credited by them n from that joint account, the repayment EMIs are transferred to joint HL account.

 

[percolate]

Or both can pay half of the EMI amount from their respective accounts.

Ideally in such joint-loan scenarios, the repayments should come both (just in case, the ITD asks).

So, we normally ask them to open a SB JOINT account into which funds are credited by them n from that joint account, the repayment EMIs are transferred to joint HL account.

 

[Honeydew]

Hey guys, my SBI home loan will be closed soon. Wanted to get clarity on below points:
1. Which all documents apart from original property documents should I collect from bank?
2. Does the SBI put a lien on the property? If yes, how to remove it? (property is in Maharashtra).

Thank you

 

[Vasuki]

Hey guys, my SBI home loan will be closed soon. Wanted to get clarity on below points:
1. Which all documents apart from original property documents should I collect from bank?
2. Does the SBI put a lien on the property? If yes, how to remove it? (property is in Maharashtra).

Thank you

Noc is most important for the loan
Then
Original doc ofc


Lien ? U can't see without orginal doc so technically yes ,but u can still sell by transferring the loan or paying it and passing the baton

 

[RAMESH BABU N]

Hey guys, my SBI home loan will be closed soon. Wanted to get clarity on below points:
1. Which all documents apart from original property documents should I collect from bank?
2. Does the SBI put a lien on the property? If yes, how to remove it? (property is in Maharashtra).

Thank you

If your HL/MortgageLoan has mortgage recorded/registered separately, then you need to get is cancelled in the books of the Registrar. You need to pay for the transfer of ownership back to you by canceling the earlier mortgage deed. This document will also be part of the orifinal document (sale deed) and the related link documents.

You need to arrange for modifications to the property's insurance. In case of any other securities given for that HL, you need to get them removed (lien cancelations).

 

[Hemang]

As far as i know, home loan should be applied by both applicants and home should be co owned by them, when both these are fulfilled, even if EMI is paid by single one of them, home loan can be equally claimed under Section 24 (b).

 

[shivamk]

As far as i know, home loan should be applied by both applicants and home should be co owned by them, when both these are fulfilled, even if EMI is paid by single one of them, home loan can be equally claimed under Section 24 (b).

Not sure about co-ownership being a must. Will have to get in touch with CA

 

[RAMESH BABU N]

Not sure about co-ownership being a must. Will have to get in touch with CA

Joint ownersip not needed. But, one of them must be the undisputed owner.

Joint HL is taken when two earning borrowers incomes are taken into consideration for calculating the loan amount.

 

[shivamk]

Joint ownersip not needed. But, one of them must be the undisputed owner.

Joint HL is taken when two earning borrowers incomes are taken into consideration for calculating the loan amount.

Ok sir. Thanks for confirming.

 

[financetherapy]

@RAMESH BABU N @percolate @Hemang @Vasuki Thank you for the replies to my query.
Currently I am the only one paying EMIs for the HL, Lender is HDFC. Can my father also avail the Section 24 deduction based on this as he is not paying the interest, I can create a joint account if fund coming from both is necessary.
Also, in case of the joint account for HL emi payment, even if I replenish that and not my father, will that work too.

I am asking for advice as my CA has not been very helpful in this matter.

 

[Hemang]

@RAMESH BABU N @percolate @Hemang @Vasuki Thank you for the replies to my query.
Currently I am the only one paying EMIs for the HL, Lender is HDFC. Can my father also avail the Section 24 deduction based on this as he is not paying the interest, I can create a joint account if fund coming from both is necessary.
Also, in case of the joint account for HL emi payment, even if I replenish that and not my father, will that work too.

I am asking for advice as my CA has not been very helpful in this matter.

Is your father co owner of house ?
Is your father co borrower of home loan ?
My parents both took benefit of section 24 b equally because they both were co owners as well as co borrowers in home loan.

 

[financetherapy]

Is your father co owner of house ?
Is your father co borrower of home loan ?
My parents both took benefit of section 24 b equally because they both were co owners as well as co borrowers in home loan.

Yes,
Yes.
Same for my parents, Me,Father & Mother co owners and co borrowers.
but the total interest amount is ~4L hence only 2 people can take benefit, right?