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Saturday, September 22, 2018

5 Steps to Deal With the Home Loan Interest Rates Hike

by Editor (editor), , August 29, 2018

Here are few techniques that will help you in tax exemption for home loan while there is hike in interest rates.

At first, a home loan with a floating interest rate seemed like a great option. But, with inflation on the rise, lenders have introduced a hike in home loan interest rates. With the interest rate now affecting your EMI, managing your daily needs is getting difficult. Here are few techniques that will help you in tax exemption for home loan while there is hike in interest rates. Have a look at these ways:

1. Prepay Your Loan

An EMI of Rs. 30,000 may be bigger than an EMI of Rs. 20,000 but in case of hiked interest rates, bigger is actually better. With a lower EMI over an extended period of time, you may end up paying a larger amount of money. With higher EMIs on your pre-set tenor, you can prevent paying more interest amount overall.

Hence, prepaying your home loan can help in reducing your interest burden over time.

2. Maintain Your Tenor

Your loan tenor plays a big role in deciding how much interest you may have to pay in the end. A longer tenor may reduce your EMI burden but it could increase the amount of interest you pay.

For instance, a home loan of Rs. 50 lakh at 10.5% for 20 years will get you an EMI of Rs. 49,919 and a total amount payable of Rs. 69,80,559. If you reduce your EMI to Rs. 45,737 and increase your tenor to 30 years, your total amount payable increases to Rs 1,14,65,307! That’s Rs. 44,84,748 more. To prevent this from happening, consider shortening your tenor if possible. If not, maintain the pre-set one.

3. Claim Tax Benefits Under:

  • Section 80C

The principal amount you pay in a home loan qualifies for tax deductions under Section 80C of the Income Tax Act, 1961. You can claim a maximum deduction under Section 80C, Section 80CC and 80CCD of Rs 1.5 lakh. You can also claim a deduction of registration fees and stamp duty under this section.

  • Section 24

The interest paid by you on your home loan qualifies for a deduction under Section 24 of the Income Tax Act. The maximum amount allowed for deduction is Rs. 2 lakh. If you are earning from the property you bought from the loan amount, the loan interest will be reduced from this income. The whole amount is then eligible for a deduction as there is no upper limit in this case. Keep in mind that deductions must be calculated and claimed every year, whether or not it has been paid in a particular year.

  • Section 80EE

Section 80EE gives you an additional benefit of Rs 50,000 if you are a first-time homebuyer. This benefit is over and above the limits of Section 80C and Section 24. But, you can only claim this if the value of the property is less than Rs. 50 lakh and the home loan is less than Rs. 35 lakh. Also, the home loan must be sanctioned after 1st April, 2016.

4. Consider Consolidating Your Debt

Your home loan may have an EMI of more than Rs. 30,000. In addition to this, you may also have credit card debts to repay. This incredibly high amount only adds to the debt you have each month. A debt consolidation plan can help you reduce this burden and also give you a lower interest rate than your current situation. Consider using this plan to pull yourself out of debts.

5. Look Before You Switch

While switching your lenders can get you lower interest rates, don’t forget to compare all lenders. Since it depends on a number of factors, such as the balance amount, tenor and your ability to repay the loan, switch only if these factors are in your favour. If you have recently taken a home loan, the process of switching lenders may not be worth the effort. If your loan is older, you can explore the option even if the difference is narrow, after a cost-benefit analysis.

Conclusion

Paying off loans may be a long-term commitment but you can always use it to your advantage, even with the rise in home loan interest rates. To know more about tax exemptions, deductions and benefits on home loans, click here.

Bajaj Finserv brings you a number of tools and calculators along with pre-approved home loan offers. This saves you time and simplifies the loan application process. Just share a few basic details and check out your pre-approved offer.

Summary

Out of all the loans that offer tax benefits, home loans are right on top of the pyramid. The tax exemptions you get for your home loan depends on various factors like the loan amount and tenors. While Section 80C offers deductions for the principal amount you pay, you can claim tax exemptions for your home loan interest paid.



About the Writer

Editor is an editor for BrooWaha. For more information, visit the writer's website.
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