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

 

[dravidsarang]

@Vasuki might be point worth adding in original post. "If you are using an Max Gain loan, you can also adjust the amount to be deposited in the SB account attached to the loan so as to maximize tax benefits"


That would be great.

slight correction.
You get an overdraft account linked to your HL account (your SB account stays the way it is).
You can always fund your OD from SB to get maximum benefits (example: I move my entire salary to this account every month after making all CC payments, except few thousand rupees for day-to-day upi payments).

 

[shivamk]

yes if u have max gain tgen that account shd be your main account for all day to day transactions... except for investment etc.. max benefits will accrue that way

Sorry didn't get why should I use the account for day to day transactions. Can you explain a bit or share a link to read about this?

 

[shivamk]

slight correction.
You get an overdraft account linked to your HL account (your SB account stays the way it is).
You can always fund your OD from SB to get maximum benefits (example: I move my entire salary to this account every month after making all CC payments, except few thousand rupees for day-to-day upi payments).

Corrected . .

 

[mayankcse10]

Sorry didn't get why should I use the account for day to day transactions. Can you explain a bit or share a link to read about this?

Essentially, it means that you keep the maximum possible balance in that account rather than keeping balance in a different account and then using it.

 

[Zacobite]

Sorry didn't get why should I use the account for day to day transactions. Can you explain a bit or share a link to read about this?

In a loan saver product - a bank account is attached.. interest in the HL is calculated daily.. So eg. if you move your salary to this account on the 1st...say 1L rs.. then for that day your interest will be chgd on 1L less for your principal.. next day u pay 20k as bills.. then next day 80k less on principal for interest calcs.. and so on.. so use it as ur main acct.. u will save hl interest.. and use it like your normal primary acct.. no need to keep more than principal outstanding at any point..IF you cannot do this regularly then don't get this kind of loan bcoz it is usually at a higher rate.. so u have to be very clear on hw to gain from it!!

sample below

Home Saver Loan Calculator Online - Standard Chartered India

Calculate potential savings with our Home Saver Calculator. Maintain above deposit balances to reduce interest outflow and shorten loan tenure effortlessly.

www.sc.com

 

[sjmajumder]

slight correction.
You get an overdraft account linked to your HL account (your SB account stays the way it is).
You can always fund your OD from SB to get maximum benefits (example: I move my entire salary to this account every month after making all CC payments, except few thousand rupees for day-to-day upi payments).

You can even pay your cc bills from this account. Move your salary on day 1 and use it for all expenses. That way you can minimize interest.

 

[sjmajumder]

In a loan saver product - a bank account is attached.. interest in the HL is calculated daily.. So eg. if you move your salary to this account on the 1st...say 1L rs.. then for that day your interest will be chgd on 1L less for your principal.. next day u pay 20k as bills.. then next day 80k less on principal for interest calcs.. and so on.. so use it as ur main acct.. u will save hl interest.. and use it like your normal primary acct.. no need to keep more than principal outstanding at any point..IF you cannot do this regularly then don't get this kind of loan bcoz it is usually at a higher rate.. so u have to be very clear on hw to gain from it!!

sample below

Home Saver Loan Calculator Online - Standard Chartered India

Calculate potential savings with our Home Saver Calculator. Maintain above deposit balances to reduce interest outflow and shorten loan tenure effortlessly.

www.sc.com

Bro how is this different from what I said? Seems like we both are saying the same thing in different ways.

 

[Zacobite]

Bro how is this different from what I said? Seems like we both are saying the same thing in different ways.

i answered a direct question he asked me..

 

[sjmajumder]

i answered a direct question he asked me..

I am referring to what you said earlier to me. I tried to explain this same concept to you. But then you disagreed.

 

[Zacobite]

I am referring to what you said earlier to me. I tried to explain this same concept to you. But then you disagreed.

That is completely different and dont want to argue.. so i decided to discontinue the discussion.. here to share and learn.. appreciate your info..

 

[sjmajumder]

That is completely different and dont want to argue.. so i decided to discontinue the discussion.. here to share and learn.. appreciate your info..

Same here. Thanks!

 

[sjmajumder]

That is completely different and dont want to argue.. so i decided to discontinue the discussion.. here to share and learn.. appreciate your info..

Just saw the screenshot. I still don't get your point. Care to explain. Don't worry, we are not arguing. Sharing and learning!

 

[shivamk]

Essentially, it means that you keep the maximum possible balance in that account rather than keeping balance in a different account and then using it.

In a loan saver product - a bank account is attached.. interest in the HL is calculated daily.. So eg. if you move your salary to this account on the 1st...say 1L rs.. then for that day your interest will be chgd on 1L less for your principal.. next day u pay 20k as bills.. then next day 80k less on principal for interest calcs.. and so on.. so use it as ur main acct.. u will save hl interest.. and use it like your normal primary acct.. no need to keep more than principal outstanding at any point..IF you cannot do this regularly then don't get this kind of loan bcoz it is usually at a higher rate.. so u have to be very clear on hw to gain from it!!

sample below

Home Saver Loan Calculator Online - Standard Chartered India

Calculate potential savings with our Home Saver Calculator. Maintain above deposit balances to reduce interest outflow and shorten loan tenure effortlessly.

www.sc.com

Got it, so its as simple as putting all savings account money in this account and the reducing interest according to amount available.

 

[dravidsarang]

You can even pay your cc bills from this account. Move your salary on day 1 and use it for all expenses. That way you can minimize interest.

Yes, I can do that.
The point here is that I adjust my OD balance in accordance to the tax benefits I want to use it for.
Example is I want to make sure that I pay XYZ amount "annually" in terms of interest as the same XYZ amount I will put into section 24B while filing my IT returns.

I urge this again that Maxgain is a better product not only to minimize interest but also to manage it according to one(s) need.
At the same time, one must also consider the fact that ROI on MaxGain will always be atleast 0.5% higher them term/tenure HL.