To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A appears every other Monday.
My father and I took a home loan of Rs13 lakh about two years ago. We bought a property in Hubli, which is registered in my father’s name. All these months my father has been paying the equated monthly instalment (EMI), but he is due for retirement soon. If I begin paying the instalments on this loan, can I avail income-tax exemptions?
As per the Income-tax Act, 1961, since your father is the sole owner of the property, he is the only one who can claim tax benefits on the home loan. To be able to claim tax deduction benefits on the home loan, you have to be a co-applicant for the loan as well as co-owner to the said property.
Hence, even if you start paying EMIs you will not be able to claim tax deductions. We suggest you consult a tax expert for further advice.
I am planning to obtain a housing loan of around Rs28 lakh for a 20-year tenure at a floating interest rate. I am yet to decide on which bank I should take the loan from. Since it’s a big liability, I want to plan my finances as far as possible right at the beginning so that it doesn’t become a burden later, and hence start saving accordingly. I want to know whether it is possible to prepay a lump- sum amount out of the principal loan amount, say, any time after five years. If yes, will there be any penalty on early payment? Will it reduce my EMI or tenure of payment of loan?
If you have surplus funds, you could consider prepaying part of the home loan, as it will bring down your overall liability. You could then request your lender to reduce your EMI or reduce your tenure while keeping the same EMI, or reduce both to some extent. Generally, if a customer opts for prepayment, he needs to pay some charges on the amount being pre-paid. Hence, you will have to check the terms and conditions of the specific lender.
Also, before you prepay a home loan, it is advisable to first pay up all high-cost unsecured dues such as credit card expenses, personal loan, etc. (if any), and set off some amount for emergency expenses. Further, housing loans have great tax benefits, which makes the effective interest rate much lower—hence prepaying the loan may not make financial sense.
Another alternative, which you may want to explore, is HDFC’s Accelerated EMI Option, which gives customers the option of increasing their EMI depending on their cash flow. The advantage here is that customers are not liable to pay any charges for this facility and at the same time benefit from faster loan repayment. You could walk into any HDFC office for further assistance.
Renu Sud Karnad is joint managing director, HDFC.
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