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Should you prepay your home loan?
Harsh Roongta

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February 19, 2009

Have a query regarding your home loan? Maybe we can help.

Drop us a line and our expert, Harsh Roongta, will answer it.

Hello Sir, I have seen your article on home loan and got impressed. I am not Finance techie guy. Could you please suggest about my Home Loan re-payment. I had bought Home in 2006 in for which I took loan from ICICI [Get Quote] about 20 Lk. EMI around 19000 for 20 years including ICICI Prudential insurance (5 Years insurance plan), Since I had got a good opportunity abroad, I had repaid almost 50 per cent of my principal loan amount till now, Trying to finish my principal amount as soon as I can, and in this year hopefully I could pay all my Loan.
Can you please advice on:

Is it advisable to payback loan principal in such a short term? I checked with ICICI, they said you can payback and there will not be any penalty or charge for that. Is it true? I mean if any hidden charges or anything?

Since I have plans to go back to India in near future, do I go for reduced EMI and continue until 5 years so that I can take benefit of insurance and in the meantime I can invest my money somewhere else?

I am in confused in this situation of recession.

                                                                                                                                                                            Amit

Why not if you have surplus funds. Make sure that you have enough money set aside for your emergency needs. You can pay off the principal if you have surplus funds. The amount made as prepayment will be adjusted against the total loan amount outstanding. Check your loan agreement for any hidden charges.

Whether you should reduce your EMI or loan tenure depends on the rate of interest. Check the 'Should I prepay my loan' (http://www.apnaloan.com/loan-advice-india/prepay-loan-calculator.html) calculator.

Hi, the facts are mentioned as below:

a) The House is bought in Gurgaon from Ansals in the joint name of wife and husband, wife having first name.
b) The loan was taken from HDFC [Get Quote] to finance the purchase, again in the joint name. The loan agreement clearly shows both names.
c) Wife works for a company having office in Gurgaon and husband has a job in Delhi [Images]. Both are under 30 per cent tax slab.
d) Both live with their parents at a house in Vasant Vihar in Delhi, of course for personal convenience. This house is in my mother's name.
e) The EMI post-dated chques are given out of a bank account having husband's name as joint a/c holder. The money in this account basically pertains to the wife only as the salary gets credited to this account.

The queries are:

a) Since the property is not self occupied, will it be treated as 'Deemed to be let out' and accordingly annual value will be added to the income since Sec. 23(2)(b) will not be applied in this case? Of course, deductions under Sec. 24 (a) and (b) will be allowed to calculate loss from House property to be set off against salary income.
b) Since no defined share of ownership is mentioned anywhere, will it deemed to be in a 50:50 ratio. And consequently, the tax rebates towards interest on borrowed capital and principal repayment will be shared in half as well? Do we need to have a share agreement on a plain paper as part of the record? I think 'yes' to all above.
c) HRA is received by both wife and husband. What will be deduction eligibility for HRA given the above scenario?
d) As mentioned above that although EMIs are paid out of a joint account with husband contributing almost nil to the bank balance, will it be considered as payout of interest and principal repayment from both of them jointly? Imagine a total of 330,000 (interest payment) and Rs 250,000 (principal repayment) is paid out of this joint account during a F.Y, can the rebates be claimed by both husband and wife in 50:50 ratio, subject to maximum amount allowed under Sec. 24 (e) and 80 C in each case. Is there a specific need to pay separate interest and repayment cheques from wife and husband claim rebates in their respective ITRs.
e) Wife's office is refusing to give Sec. 24(b) rebate saying that it is not self occupied and because HRA is being claimed. Meaning thereby according to them Sec. 24(b) deduction is allowed only when the property is self occupied and not let out or deemed to be let out. On top of it they have deducted the first TDS installment of Rs 12,000 from January salary as well. I think they are wrong.

                                                                                                                                                                 Nitin Gupta

a) If the property is in an inhabitable condition, and you do use it on weekends etc, you can claim it to be self-occupied.

b) Yes, by default, the ratio of ownership will be 50: 50 and you will have to enter into a share agreement (http://www.apnaloan.com/home-loan-india/shareagreement.html) to be able to claim tax deduction benefits to the extent of respective shares in the home loan.

c) HRA exemption can be claimed. If the house is rented in your name your wife or your name. This is of course assuming that you actually pay rent to your mother.  

d) Yes, the EMI will be debited from a single account which could be in joint name. The contribution of either of the owners is not debited separately from different accounts. Yes, you can claim tax deduction benefit on principal up to Rs 1 lakh under section 80 C each co-owner/borrower and Rs 1.5 lakh for the interest under section 24. You will need to reimburse your wife for the amount paid by her out of her bank account (jointly held with you) to the lender. There is no requirement that each of you have to pay separately to the lender.  

e) You can claim tax deduction by filing IT returns and getting a refund of excess TDS.

Dear Sir, I have taken a home loan along with my spouse as co-applicant during July 2008, now we both intend to claim tax benefit for the current financial year. Sale deed clearly indicates ownership of property on my name followed by my wife and no percentage of share was mentioned. As such we did not execute any share agreement separately.

Please let us know:

1. How and where to declare percentage of ownership/claim while submitting Form 12B to my employer? And also while preparing IT returns?
2. In case if I wish to claim total tax benefit in future (when my spouse stopped working), how can I proceed?

                                                                                                                                                                       Murahari

You can claim 100 per cent tax deduction benefit on home loan by entering into a share agreement with your spouse. Change of share of ownership year by year is not advisable as this will have stamp-duty and other legal implications.  

Dear Sir, I have 2 home loans, one from HDFC for an amount of Rs.12 Lakhs (Started in 2008) on a floating rate loan (Present interest rate is 11 per cent) and the second loan is from ICICI for an amount of Rs 5.5 lakhs (started in 2004; remaining principal Rs.4.65 lakh with a fixed interest rate of 7.75 per cent). My EMI is Rs 11,780 for the first loan and Rs 5,174 for the second loan. My total interest component per annum works out to Rs 1,65,000 and I am availing full benefit on this interest component for IT purposes. I have some surplus amount out of my savings. My question is that whether I should repay my principal partly so as to reduce the interest component to Rs1,50,000 or should I invest my surplus in any equity mutual funds. Kindly offer your advice.

                                                                                                                                                       S. Krishna Kumar

It is not possible to answer the question except to say that it is probably not advisable to prepay the fixed rate loan of 7.75 per cent from ICICI under current circumstances. Returns from equity mutual funds can vary and sometimes it can even be negative.  

Hello sir, I'm paying pre-EMI for the home loan which is partially disbursed to me. Construction work will be completed by January 2009 and ready to be occupied in the same month. My question is, how I can claim this Pre-EMI? As far the information I gathered, this Pre-EMI will be split in to 4 or 5 equal parts and will be claimed in the consecutive years. Please clarify me.

                                                                                                                                                                          Saran

Yes, you can claim tax deduction benefits on home loan for under-construction property from the financial year in which the construction is completed. The pre-EMI interest is payable for the financial year ending March 31, 2009 is fully deductible. Any interest payable in respect of period prior to April 1, 2008 will be deductible in 5 equal installments starting from the financial year ended March 31, 2009.

ApnaLoan is a price comparison site that allows consumers in India the ability to compare the EMI (http://www.apnaloan.com/loan-advice-india/emi-rates-calculator.html), interest rates and other fees for home loans (http://www.apnaloan.com/home-loan-india/index.html), car loans, personal loans, business loans and credit cards.


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