Loans are big commitments

Loans are big commitments
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First Published: Sun, Jun 24 2007. 11 43 PM IST
Updated: Sun, Jun 24 2007. 11 43 PM IST
To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A will appear every other Monday.
I’ve taken a large amount of home loan and since it is a large commitment, I want to know if there is any way I can safeguard my family in case of any eventuality.
It is true that home loans are a big financial commitment since they’re for long durations of 15-20 years and involve a significant amount. One good thing is that the loan is for an asset, which may appreciate even while you are using it unlike a car, etc. However, one needs to consider the uncertainties during such a long period and it would be better to take a home loan insurance cover for the amount. Such a plan ensures that the outstanding loan, up to the amount insured, is adjusted/repaid in the event of death of the borrower, which is a huge security for the family during the term of the loan.
HDFC, in association with its group firm HDFC Standard Life Insurance, offers a Home Loan Protection Plan, which has been specially developed to suit home loan customers. This plan is a single premium decreasing sum assurance plan. This ensures that you only pay for the protection that is required and do not end up paying additional premium. It’s possible to include the premium in the loan amount itself and repay as part of the regular instalments. However, assuming that since you have already taken a home loan without the insurance cover, you can still take an insurance cover for the balance of the loan by paying a single premium.
I have only about 10 years left for retirement, whereas my wife has 15 years left. I want to buy a high-value property and want to know how I can avail of a loan for the same value, keeping in mind my retirement period. Can you advise?
It is possible for you to avail of a loan jointly with your wife that can be customized to suit your limited years of service and also your wife’s retirement period. Some home loan players may be able to offer you a repayment schedule, which takes into account the alteration in your repayment capacity during the term of the loan because of one of the joint applicants retiring. The loan can be structured in such a way that the equated monthly instalment (EMI) is higher during the initial years and subsequently decreases in the latter part, proportionate to the reduction in income.
HDFC has such a plan called the Flexible Loan Instalment Plan. In your case since you have 10 years of service left and your wife has 15 years to retire, then a 15 year loan can be structured such that a higher EMI (serviced out of both your incomes) is worked out for the first 10 years and subsequently a lower EMI (serviced out of your wife’s income) is calculated for the next five years. This helps you get a higher than normal loan amount and yet allows you to pay the EMI comfortably.
I’m a government employee based in Delhi, with a salary of Rs4 lakh per?annum.?I?haven’t taken any loan till date. I have about Rs10 lakh in my general provident fund (GPF) account. I want to buy a house here and can avail government housing loan up to Rs7.5 lakh.
1) How much money can I spend on house purchase? 2) How much can I can spare as monthly instalments? My monthly expenditure is about Rs12,000. I don’t have any other liabilities to incur extra expenditure. 3) What should be my strategy? 4) What are the advantages from the tax point of view? I’m staying in a government house and won’t immediately?move?to the new house. I’ll have to rent it out.
If you plan on buying a house, one of the options available is to use the GPF money as it can be utilized for this purpose. However, it may not make sense to use up the entire money to buy a property since it’s part of your savings and the returns are good. It may therefore be better to go for the maximum housing loan amount to fund the property and use the PF money to finance the balance value of the property, if required. While working out the amount to go in for the property’s purchase, we’ve assumed that you still have 20 years to retirement and are eligible for a 20 year term for the loan, since you haven’t mentioned your age. Based on this, and after taking into account your annual salary of Rs4 lakh, you can go in for a property of Rs20 lakh. For this you can avail of the government house loan of Rs7.5 lakh, a home loan of Rs8.5 lakh and the balance of Rs4 lakh from your GPF account.
As for the monthly instalments, since you would generate some rental income and your monthly income works out to Rs33,000, of which Rs12,000 is your expenses, you can spare an EMI of Rs15,024. This is assuming that the government housing loan is an interest-free loan where EMI works out to Rs6,250 and the housing loan at 11% interest rate for a tenure of 20 years works out to Rs8,774.
On the income tax front for a self-occupied property the tax benefit under Section 24 is Rs1.5 lakh for the interest paid on housing loan and up to Rs1 lakh on the principal amount repaid under Section 80C. In case you are renting out the property, you can set off the entire interest payment in excess of net rental income (rent received less standard deduction for repairs) paid on the house against this income. You can also claim tax benefit under Section 80C on repayment of principal amount—part of the overall 80C benefits.
Renu Sud Karnad is executive director with HDFC.
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First Published: Sun, Jun 24 2007. 11 43 PM IST