Paying off home loan will depend on the property
I took a home loan last year. I have made some bulk payment and the
outstanding loan is now R24.9 lakh. I have made a FD of Rs 15 lakh for
555 days. My current EMI is Rs 41,000, the EMI may come down to Rs
33,334 if I restructure my loan. My status as of now is of a NRI though I
have returned to
India and am searching for a job. Shall I pay Rs 14.9
lakh by breaking the FD to bring down my EMI as well as the interest and
liability? How should I use my FD to offset the principal amount and
partially reduce the EMI? — Santosh
It is not very clear whether the property is self-occupied, leased
out or under construction. The final decision can be different for all
three scenarios, so let’s discuss all the options. The cost of
servicing a loan is not only the interest which you pay but the
effective rate of interest which is applicable net of tax benefits. That
becomes your real cost.
In the first scenario of a self-occupied property, the current
Income-Tax Act allows a deduction on borrowed capital if capital is
borrowed for the purpose of purchase or construction. The limit of
deduction is limited to Rs 1.5 lakh subject to a few conditions.
However, the interest outflow for you would be much higher. Hence the
real cost of loan will not come down substantially from your existing
rate of interest. And with rising interest costs, you can consider
paying off your loan and bring down your EMI.
For the second scenario of leased out property, the deduction on
borrowed capital is available for the complete amount of interest. The
real cost of loan comes down by 30%, assuming the highest rate of
taxation. However, the benefit may vary depending on your marginal rate
of tax. In this case, it may be prudent to continue the loan., but only
till the time your earning rate on deposits is higher than the cost of
the loan.
Lastly, if the property is construction-linked, then paying off the
loan will be a better option as you will be on a simple rate of interest
and EMI will start only after the complete loan is disbursed. The
challenge lies in whether you will be willing to pay the cost of
property upfront in times when real estate is going through a turbulent
phase. Source : Hindustan times
|