A home loan sanction is a happy moment as it is the key to your home. But, you the home loan borrower must be cautious about the repayment of the same. In fact, many people will be around to advice you about repaying a home loan. But, instead of taking these suggestions seriously, we suggest you read this blog post which clearly makes one understand the things to consider about prepaying of a home loan. So, scroll the page down and read carefully:
The lenders consider several points before sanctioning a home loan. The annual income of an applicant is checked first and then his/her age and years of remaining service is checked. This gives a clear picture about one’s caliber to repay the home loan amount. The next thing which is necessary for making a person eligible for a home loan is his/her monthly billing cycle. If you have outstanding and unclear bills then the lender might think before sanctioning a home loan. So, make sure you fit in all these norms.
- Assess Future Fund Requirements
We all need money to sustain and you the home loan borrower is also no different. So, if you plan to prepay the home loan then firstly calculate the requirement of funds for future. This assessment will help you understand the exact money requisitions for various future activities which also include children school fee, other investment payments and more. So, don’t just focus on closing a home loan account as the particular number of EMIs [Equated Monthly Installments] will make it happen in the given tenure. But, if you put all the money in prepaying a home loan then this decision can create a financial crunch for you in near future.
- Tax Implications on Prepayment of Home Loan
Tax Rebate 1:
A home loan reflects on the Income Tax assessment hence check if you can avail tax benefit by prepaying the same. The prepayment of a home loan will directly impact on your deduction eligibility under Section 24(b). A home loan borrower can avail a rebate up to Rs.2 lakh on the interest component if the property is self-occupied. S, you must pay the prepayment portion upto Rs.2. lakh in order to avail tax rebate and to lower the outstanding home loan amount. This is the general case now find out other scenarios.
Tax Rebate 2:
In case the property for which you have availed home loan is let-out or is out for selling. Then the tax rebate is different. Till now the complete interest payment was fully tax deductible but from the current financial year, the total loss under the heading ‘Income from House Property’, which is different from other incomes will be limited to Rs 2 lakhs. This deductible amount is total for all the properties. Whereas the unabsorbed loss which the money to be paid due to interest on the home loan can be carried forward to set off against the income from house property upto eight years.
- Processing Charges on Prepayment of Home Loan
Some prepayment charges are levied by the lenders and the importance of such charges depends on the terms agreed upon at the time of availing a home loan. Remember these charges are executed according to the agreement and the charges vary between 0-4 percent.
The National Housing Bank [NHB] issued a circular and all housing finance companies are advised not to levy any prepayment penalty on the home loans taken under the floating rate of interest. The housing finance companies cannot charge any prepayment penalty even if the home loan is availed on a fixed rate and the home loan borrower has repaid the loan amount from his/her own resources.
Here the own resources mean source, expect the transfer of a home loan to another lender.
The prepayment penalty charge is not imposed by the lenders if the amount prepaid during the year does not exceed 25 percent. So, if you plan prepayment of a home loan then consider the time limit to avoid penalty charges.
- Use of Investment Return for Home Loan Prepayment
If you are planning to invest the return gained from investments for prepaying a home loan then don’t do so. In fact, the experts also suggest the same as the returns from the investments must be kept separate and should be used for other purposes or they can also be added as extra savings.
On a whole, keep these points in mind and think wisely when it comes to prepaying of a home loan.