To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A appears every other Monday.
I have a car loan, a personal loan and also a home loan, which I had taken almost three years ago. I have some idle money at the moment which I would like to use to reduce my monthly outgoings by way of instalments. What would you suggest?
We feel that where a customer is servicing multiple loans and has to make the choice to repay, it is advisable that the customer evaluates the loans and decide to repay the loan based on its cost and impact on his cash flows. As far as housing loans are concerned, they are long-term loans and therefore any lump-sum payment towards a home loan will not reduce your monthly outgoings as much as a lump-sum payment towards a personal loan or a car loan, which are generally shorter-duration loans, would. Moreover, housing loans have tax benefits, which makes the effective interest rate lower.
I recently got married. My husband has a home loan against a flat he purchased in Mumbai a year ago. The original loan period is 20 years. Since I am also working, we would like to know the best way to reduce the loan term.
Several lending institutions and banks offer multiple options to customers to reduce the loan tenure. However, you may want to check with your lender whether there are any charges applicable while exercising these options.
At HDFC, there are no charges for the options offered as the purpose is to facilitate the customer to repay his loan comfortably. Some of these options, listed below, are examples of customers having a Rs10 lakh loan for 20 years at an interest rate of 11.25%, with an outstanding term of 19 years:
• Increase/acceleration in equated monthly instalments (EMI): Under this facility, the customer has the option to increase EMIs every year. For example, if a customer’s outstanding loan period is 19 years and he increases his EMIs every year by, say, 7%, he would repay the loan in approximately 11 years instead of 19 years, assuming that the interest rate is the same throughout the repayment term.
• Lump-sum payments: If a customer’s outstanding loan period is 19 years and he makes lump-sum payments of Rs50,000 each year, he would repay the loan in 11 years approximately instead of 19 years, assuming that the interest rate is the same throughout the repayment term.
• Any combination of the se: Under this a customer could partly increase his EMI and also pay some lump sum.
Renu Sud Karnad is joint managing director, HDFC. Readers may write in with their queries and comments to firstname.lastname@example.org