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

[VasukiVasuki is verified member.]

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

 

[Finchamp!]

It won't matter whose account is used for EMI, interest certificate will have both your names

I was thinking that if I get the EMI deducted from joint account, I can decide how much portion of the annual EMI corpus to claim under my 80C deductions, and how much under her 80C deductions. This flexibility shall not be available if deductions are made from solo accounts. Am I right to think this?

 

[kashishj]

If your loan type is repo rate linked - I will tell you guyz one more information I got by experience which less people know. Loan Emi interest rate is = Repo rate + 2-4% Margin which is bank's profit every bank charges us like us. Talking about my Icici loan, this margin interest rate is variable and keeps on changing quarterly or annually. Now important info - whenever this margin is increased, existing loans Emi interest rates are increased automatically. But whenever they decrease margin, they don't decrease loan Emi automatically. So what to do - Fill conversion form - They charge Rs.1180 and reduce your Emi interest rate to lowest. Regularly check the margin with bank and reduce it asap. Mark it solution or rate me as helpful user if benefitted.

 

[nayra]

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

I received interest rate increase notif from LIC HFL but didn't get any communication on how to opt for these..