A woman co-applicant co-owning the self-occupied house is eligible for extra interest deduction of interest of upto Rs 1.5 lakh each financial year
Owning a home today is a basic necessity and a dream for every individual. This makes securing a home loan one of the most important personal finance decisions in the life of an individual. Today, home loan tenures vary from 10 to 30 years, depending upon the age of the borrower and the home loan amount. Consequently, home buyers are opting for home finance from banks and financial institutions. Hence, it is imperative from the borrower's perspective to holistically analyse various aspects before you finalise the financial institution.
Tenure: The tenure of your home loan is dependent on several factors such as the borrower's age, home loan amount, income, job stability, rate of interest, past repayment record and credit history. Financial institutions recommend borrowers to opt for a tenure depending on their current income, expenditure or any future exigencies.
In case of a longer tenure, the borrower can avail of a higher loan amount eligibility depending on his age and repayment abilities. In case you have additional cash flows, you can opt to prepay or foreclose your loan, as there are no penalties levied by financial institutions on a single borrower.
A longer tenure also enables a lower Equated Monthly Installment (EMI) which could help you fulfill your other financial commitments. It is important to understand benefits and drawbacks of all available loan term options.
Legal and technical clearance: Once you avail home loan eligibility, a financial institution will initiate legal and technical scrutiny of the property. This is an important aspect not only from financial institution perspective, but also from the perspective of the end user. Hence, hence it is important for you to check with the financial institution on the legal and technical clearances of the property.
Special offers & schemes: The festive season is a good time for home loan applications, as many lenders provide interesting offers in terms of competitive interest rates and processing fees waivers to encourage home buying. It is also important to pay attention to all schemes/initiatives that have been offered by the government and regulatory initiatives towards affordable housing. For instance, the Credit Linked Subsidy Scheme (CLSS) under PMAY allows first time home buyers to avail a credit subsidy up to Rs 2.67 lakh to build their dream home. Be aware of the various initiatives and products and services offered by different lenders which will ensure that you get the best financial arrangement .
Co-applicant: There are several advantages of opting for an earning co-applicant such as enhanced home loan eligibility, equal liability for loan repayments, segregation of EMIs, income tax exemption, etc. A co-borrower's involvement is a blessing for the loan applicant and the lender is assured of timely repayments. The responsibility of monthly EMIs is shared by the applicant and co-applicant, thus easing the repayment process. Both the applicant and co-applicant are eligible for income tax exemption.
Women as co-applicant: For first home buyers, having a woman as a co-applicant could also fetch concessional interest rates at several financial institutions. It could be your mother, sister, wife, daughter, but they need to be first home buyers. A woman co-applicant co-owning the self-occupied house is eligible for extra interest deduction of interest of upto Rs 1.5 lakh each financial year.
Prepayment: Most financial institutions provide a prepayment facility, allowing borrowers to prepay their loan amount in part or full, post informing them in writing. Borrowers can opt for prepayment of home loan when they have surplus funds, thus saving huge amounts on interest paid under monthly instalments. It reduces principal outstanding, which in turn reduces EMI and the remaining loan tenure.
Tax exemption: The current applicable exemption under section 24(b) is Rs 2,00,000, for the interest amount paid in the financial year and up to Rs 1,50,000 (under section 80 C) for the principal amount repaid in the same year.
The writer is joint MD and CEO, DHFL
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