I have been staying with my parents and plan to move out. Should I opt for a rented house and then later plan to buy a house? I am married, and our baby is one-and-a-half years old. I am the only earning person.
—Name withheld on request
There are few factors that can help you in deciding whether moving to a rented premises is a better option versus buying a property for own usage. First, age being on your side, you will need time to decide where you plan to settle down. This is also a factor of the stability of employment. It is better to invest and buy a property where you will eventually settle down. Second, when moving to a new location, it is preferable to first try staying in a rented house to check whether you are comfortable in the new location or are there better options that you could have missed out subject to your preference and tastes and of course budget. For example: if you purchase a property and do not like it, selling it and again buying one is not easy. This would turn out to be expensive in terms of your time and money. Third, moving to a rented place is always a better financial decision (perhaps not a good emotional decision, more so for Indians) as the cost of rentals for residential property varies from 1.5-2.5% of the capital value of the property. Another reason could be your own financial health. The property where you want to stay may be an expensive one and hence out of your budget and the property that you can buy, you may not want to stay in. So a balancing act needs to be done, where renting can fit in quite well. And last, with property markets not going through a good time and prices coming down, it may be a good time to wait before you jump in the real estate market.
We have a residential property that is registered jointly in my name and my mother’s name. How can I get it transferred to my mother’s name? Can I do a release deed to my mother or will a gift deed suffice? The property is in Rajasthan.
—Name withheld on request
You can transfer your share of the property either through a gift or by a Will. If you transfer via a gift, it is important that you do a gift deed and it should be documented and registered. In the normal course, if the property is gifted without any consideration and if the stamp duty valuation exceeds Rs50, 000, stamp duty value will be taken for the purpose of taxation. But in your case it come under the exemption clause as it is being gifted to your mother, defined as relative in the income-tax Act. However, the transfer will be subject to stamp duty as applicable. And in case you think opting for the Will is a better option, there will be no tax applicable on inheritance.
I took a home loan of Rs8 lakh in 2015 at an interest of 10.5% for 180 months. Since then, the rate on home loans has reduced to 9.85%. My outstanding amount now is Rs7.26 lakh, and the remaining duration of loan is 138 months. I wish to change to marginal cost of funds-based lending rate (MCLR), which can give me an interest rate of 8.8%, with 0.5% fee plus 18% GST. Should I make the switch?
It is advisable for you to reduce your housing loan interest rate from the base rate to MCLR as it offers you better transparency and with interest rates expected to come down, it will offer you faster reduction of interest rates. Besides offering you a lower rate, it is good to know about MCLR and how it can be beneficial in future over the current base rate mechanism.
MCLR is a combination of marginal cost of funds, banks operating cost, tenor premium, carry cost of cash reserve ration (CRR: the cost of funds that banks have to maintain with the Reserve Bank India without any interest. So the interest rates will be true to its cost and hence there will be some spread and don’t expect to get the rate equal to the bank’s MCLR.
It is also good to know that banks generally link 12 months’ MCLR to the housing loan and hence the reset in the loan rate may happen at an interval of 12 months. And in case you believe that interest rates are expected to come down in the near future, let’s say next month then, it may be prudent to wait for the rate cut and then go for a switch. Typically, banks charge 0.5% as the conversion cost. Some banks may charge flat fees and in case of large loans, bank may even reduce the conversion charge, which means as a consumer you can negotiate.
Surya Bhatia is managing partner at Asset Managers.
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