How to save money by opting for home loan balance transfer

Home loan balance transfer is the best way to save on interests. By transferring a home loan to a provider who offers you a lower rate than your existing provider you can save on your EMIs. There has been a dip in the home loan interest rates post demonetization. This happened because a huge amount of cash was deposited in bank accounts across the country. With this surplus of cash banks could afford to lower their interest rates by a significant amount, thus making it cheaper for people to avail of home loans.

Post the demonetization, Home Loan Interest Rates have gone down by as much as 50 basis points. This means that those who apply for home loans now will get much better interest rates than those who have existing home loan. If you’re one of the people who already have a home loan do not fret, you too can avail of the benefits of this dip in rates.

How? By opting for a home loan balance transfer! A home loan balance transfer can help you save a substantial amount of money if you choose a provider who is offering a much lower rate than your current provider. It also only makes sense for you to opt for a transfer if you have a long tenure left to repay your loan.

If you’re considering a home loan balance transfer in the near future, here are some essential things you should know about it.

1.  Savings is the main reason for transferring home loans. But make sure that you opt for a Home Loan Balance Transfer only if the total savings in interest payout is substantially higher than the cost incurred while transferring the loan. Usually, the new lender will charge various fees, such as conversion fee, processing fees and administrative charges during the loan transfer.

2.  Transferring your home loan to a new lender is similar to availing a fresh loan, where the new lender will have its own set of terms and conditions. You can use it to re-set your loan EMI and tenure and top up as well. Opt for a home loan transfer if your existing lender is not allowing you to reset the terms and conditions of your loan.

3.  Usually banks and NBFCs provide top up loans to existing borrowers. These are just like personal loans but their interest rates are lower than a separate personal loan. One may require a top up in case of funds required for an emergency or in case of a home loan for renovations. Transfer your loan only if your current provider is not allowing you a top or if the new provider is offering you a better rate.

Your guide to understanding income tax benefit on home loan

Just like property in India is a good investment, home loan India too are a great investment. With property rates soaring, it’s not really possible for the common man to purchase a property of his own without opting for home finance. But with so many taxes that already get deducted from your income can you really afford to pay your monthly EMIs?

Well, the Income Tax Act has made provisions for home loan borrowers, so that they can finally fulfill their dream of having a home of their own. There are three sections in the Act that give you tax benefits on home loan. You should know these because they are handy tax saving calculators. Here’s what they are.

1.  Section 80C: This section states that you can claim tax benefits of up to Rs 1.5 lakhs on repayment of the principal amount of your loan.

2.  Section 24: This section states that you can claim tax benefits of up to Rs 2 lakhs on repayment of interest on housing loan but this is only applicable for a self-occupied property. If you are renting out your property then there is no maximum limit on the tax benefit amount. So, you can claim the entire interest amount as a tax benefit. You can do this even if the amount exceeds Rs 2 lakhs.

3.  Section 80EE: This section states that if you are a first-time buyer then you can claim an extra Rs 50,000 as tax benefits on the interest repayment.

There are many tax benefits on home loan but, there are certain conditions that you need to fulfill to be able to claim them. The first and foremost condition is that you can only start claiming income tax benefit on home, once the construction of your new property is complete. These tax benefits do not apply to under construction properties, even if the borrower has already started paying EMIs. But there is an exception to this rule. You can get a benefit if the construction ends within five years of you taking the loan. Earlier this was only three years. This period has been revised because of the rising number of stalled constructions in recent times.

If you opt for a joint loan, to enjoy income tax benefit on home loan, the second party has to be a co-owner as well as a co-borrower. They can then claim tax benefits on their home loan interest rate separately. They can only do this when their individual share of the property is clearly defined. The ratio of tax benefit is the same as the ratio of the property share.

How a Joint Home Loan increases your Savings

If you are planning to buy your own home, under the Pradhan Mantri Awas Yojana (PMAY) scheme, remember that there are only a few months left for you to gather the amount for down payment, select a good builder, a desirable location, and also the home loan lender.

The recently introduced Credit Linked Subsidy Scheme (CLSS) for Middle Income Group (MIG) is applicable only for a period of one year starting 1.01.2017. Let's understand who all are eligible for the MIG category, who all can apply, how does the subsidy impact the loan amount and how much is the subsidy on home loan.

The middle-income earners

●       The MIG category further comprises of two slabs.

●       The Middle Income Group (MIG) - I include households having an annual income between Rs.6,00,001 up to Rs.12,00,000.

●       The Middle Income Group (MIG) - II includes households having an annual income between Rs.12, 00,001 up to Rs.18, 00,000.

  Cost

●       There is no processing charge for eligible housing loan amount as per the income criteria specified in the Scheme.

●       Lenders can charge the normal processing fee for additional loan amounts beyond the eligible loan amounts for interest subsidy.

The impact

●  The Prime minister awas yojana scheme for MIG buyers might not increase the demand for residential housing to a great extent.

●  The benefit of Rs 2.3 lakh/Rs 2.35 lakh probably won't be that appealing keeping in mind the cost of houses in the urban areas.

● There is a possibility that the government might consider doing away with the area restriction of 90/110 sq mt to increase the demand.

How is the subsidy adjusted?

●  The home loan interest rate subsidy will be credited directly to the loan account of the beneficiaries.

●   This would lead to decreased effective housing loan and home loan EMI.

Loans under PMAY

●  You can avail the Pradhan mantri awas yojana benefits if you wish to acquire a new house from the the builder and even for purchasing a house from the secondary market through repurchase.

●  One could also apply for a loan for the construction of the house. You can also apply home loans online.

●  If someone already owning a home wishes to avail pm awas yojana benefit, there's still a possibility.

●  The government has made it clear that the Mission (Housing for All by 2022) also offers enhancements/incremental housing to the existing 'pucca' house under the CLSS scheme component.

It is imperative to keep in mind that even if you are a first-time buyer it is wise to tread carefully and weigh all the options prior to venturing out to explore the affordable housing segment.