To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A will appear every other Monday.
I have a sanctioned home loan of Rs20 lakh in May 2007 by a bank for an under-construction property in which disbursements were being made in phases as per the progress in construction. Till date I have received Rs18 lakh. I have requested the bank to stop further disbursement as I can arrange for the balance Rs2 lakh from my own funds. I have been paying pre-EMI for the disbursements and the property is still under construction. I would like to know the following:
a) Can I start my regular EMIs now even though the property is under construction since I won’t be taking further disbursements from the bank?
b) Can I shift over/transfer the loan at this stage to another bank, which can provide me a lower interest rate since my current interest rate is high?
You could request your lender for a reduction in loan amount at any point in time and you could start paying EMI (principal plus interest) on the amount disbursed till date. Having said that, one can claim tax benefits only after having taken possession. Once the construction is over and you take possession of the house, you can claim tax benefit, but only for the interest paid during the pre-possession stage. You will not be able to claim any tax benefit on the principal amount repaid till the date of possession. As per the Income-tax Act, one is allowed to claim tax rebate up to 20% of the interest paid during the pre-possession stage in the year you take possession and the balance 80% can be claimed over the next four years to the extent of 20% each year, subject to a cap of Rs1.5 lakh per year in the case of a self-occupied property.
Yes, you could transfer your loan to another lender. However, you must take note of the cost implications of doing so. To transfer the loan, not only will you have to pay prepayment charges on the outstanding principal amount to your current lender, but you will also have to pay processing fee on the transferred loan to your new lender.
Alternatively, you may want to check the possibility of a conversion to a lower rate with your existing lender.
Renu Sud Karnad is joint managing director, HDFC. Readers may write in with their queries and comments to firstname.lastname@example.org