A Home Loan is Not a Liability Anymore

A Home Loan is Not a Liability Anymore
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The real estate industry has seen a sluggish growth due to an economic slowdown, which in turn, meant real estate economy stakeholders facing a challenging time. There was a crisis situation evident, where many projects were built, but remained unsold. Add to it, the increasing pressure on the builders by a rising consumer sentiment that ‘deliver on time’ or face the legal consequences. Amid all this, banks grew at a rate of 19% during FY2016. This was achieved by offering better rates, increased retail focus and balance transfers of existing home loans.

Government of India has devised a plan ‘Housing for All’ under which 20 million homes for the urban poor will be provided by 2022. Meanwhile, RBI increased the lending amount value for banks to give to the home loan borrowers in December 2015. It allowed a loan-to-value ratio (LTV) of up to 90% for home loans of Rs 30 lakh or less; up from the earlier criteria of Rs 20 lakh. LTV is 80% for home loan value above Rs 30 lakh.

What does this mean for the consumer?

1. With a high capacity to borrow, the consumer can expect to buy his dream home based on certain protocols to comprehend beforehand. One is a bigger loan would imply a higher EMI. Second, don’t buy a home at a price which is more than twice your total gross annual household income.

2. Your loan application will be reviewed on the basis of your existing EMI and its proportion to your total income. Usually, your EMI-to-income ratio should not be more than 50%.

3. Make sure your CIBIL score is right. It is advisable to clear all your loan payments, credit card payments, car loans etc, to achieve a CIBIL score of 700 and above, before applying for a loan.

4. While choosing the tenure for your EMIs, it is also wise to consider the total interest you will be paying. If you look at the EMI chart, the bank levies a higher rate of interest in the first 5-7 years. If you pay the complete loan after 7 years, for example, then you have already paid the interest and will end up paying only the principal amount, which will not give you the advantage of saving the interest money.

5. No charges are levied on refinancing your home loan or balance of transfer of home loans.

6. For tax benefit on joint loans, both the borrowers are entitled to a rebate of Rs 2 lakh each. It is important to seek professional help of a chartered accountant in this case, as your office administration might debate that a tax rebate of Rs 1 lakh each will apply to the joint loan holders.

7. If you have taken a home loan and let out the property, then you are entitled to additional tax rebate. For example, you are paying an annual interest amount of Rs 4, 10,000 and also, earning an annual income of Rs 1, 20,000 by renting the property. In this case your tax rebate will be given on 4,10,000-1,20,000= 2,90,000; as you are still losing this amount as annual interest.

(Advertiser-Sponsored Feature: A Marketing Initiative)