Difficulties’ pertaining with property loan is easily solved by the available option of Home loan. Borrowing a home loan helps the individual to reduce the burden from his head; it is also true that borrowing should be done with proper and right source. If you are failed to track the correct source and are not aware of the fiscal and taxation consequences in getting property loan it can soak your life and peace of your mind at every single point of time. Here are some guidelines for acquiring, taxation policy and repaying your home loan.
ยท Means, Mediums and borrowing capacity of an individual?
Banks, private money lenders, financial institutions, friends and relatives and also many others are the available means, or sources for grasping the loan, in this Banks plays major role in providing a Property loan. Banks have their own criteria for calculating the capacity of an individuals borrowing. Banks judge your borrowing capacity from the chart of the total income expenditure done by you in the given period of time. It depends upon the monthly income and expenses flow from your income. Bankers assume around 40% of monthly income can be utilized for paying into the monthly installment. Like, if your monthly income is about 50000, then the maximum installment amount can reach around 20000. Further, calculation for the final loan amount is also calculated on the period of loan & rate of interest associated. For eg, rate of interest at 9.5%, along with tenure of 20 years then loan of approx 22 lakhs can be availed. Here, your Liabilities are also taken into account by the banks. Henceforth it is recommended that overall expenses should not exceed 55 – 60% of your total monthly earnings to acquire a residential or commercial property loan.
To acquire property loan age factor is also considered by bankers. If an individual is 53 years of age then there are chances of not getting loan through banks whereas on other side if an individual is at 30 years of age then he can easily quote and receive the applied loan. Here age factor is considered by banks so that there should not be any existence of default payment of installments or loss to banks. As the age of 60 is the age where an individuals get retired from his service and the person with 30 years is still young at his age to easily repay his EMI and outstanding as compared to person of 53years of age.
Monthly CTC salary is also indeed important factor. Allowances and special allowances are not taken into account while lending the money. This includes commission, incentives, monthly bonus all this may reduce your eligilbity for loan to acquire since it is not fixed regular income. Home loan is also favorable for the person who is opting loan for renting the house. Individuals, who has availed the loan and given his flat on rent, can apply for the deductions without harming their HRA’s received in their gross salary under sec 24(b).
- Joint, family, friends and Relatives loan
If an individual is running with short of funds or reserve to acquire a property and banks reduces his borrowing eligilbity he can go for a co-borrower. Banks generally accepts a co – borrower and provides loan. Some lenders are not very much OK with co – borrower as your spouse, since they think that, there can be any time disputes between the both. So the idea of making your life partner as co – borrower is a good option.
Loan managed from friends, relatives or any other financial sources also enjoys the tax benefits. This comes into effect only if the loan so acquired is for building a property, to buy property, other repairs and renovations accomplished with the property. But, claim and deductions for the loan availed from other financial institutions is not considered under sec 80C. Taxation is liable only in ready constructed properties. However, no tax deduction is followed if the loan is availed to buy an open plot of land.
- Taxation Benefits on Property Loan
Under section 80C deductions upto1 lakh can be claimed if an individual repay housing loan. This is very much beneficiary to the person who actually pays the huge amount of installments. Not only this, deductions under sec 24(b) of 1.5 lakhs a year can also be claimed apart, from the taxable earnings of the borrower.
Tax deductions can be claimed individual if there are co – borrowers for the home loan. Individuals are eligible for the benefits as per the ratio of contribution to acquire and ownership of so called property. For instance if wife pays 30% of overall amount from her source then she is liable for the deductions as per her contributed ratio. Thus, if in a current year, principal is repaid of 1 lakh, she can claim the deductions of 30,000 following her husband to 70,000.
- Early Repayment of loan
A controversy always clashes in minds of the borrowers whether it’s good to repay the loan amount early before the tenure period? Here I would suggest YES, because it is good to repay the loan as early as possible rather then waiting for the tenure period to get end. In current if you are paying higher rate of interest you are indirectly loosing your money and filling the pockets of the lenders. As, in practical terms if you keep waiting your tenure period to get end you are actually paying 3- 4 times of your actual borrowed principal amount from the lenders. For instance if you have borrowed a loan of 20 lakhs in this year of 2011 for 20 years and at the end of the term period which would end in 2031 you would be paying to lenders around 70 lakhs, which is actually a huge loss. Therefore, it is recommended if you have the funds available then pay the loan amount soon as possible. Repaying is easy, banks charges a reasonable fee of around 1 – 2.5% for the outstanding loan amount however, some banks also show helping hands by not charging even a penny.
The concept of Taxation should also to keep in mind if you plan to sell out your property. As short term capital gain comes into picture if you sell out the property with in the 3 years of purchasing the property. Therefore the good idea is to invest at least 60% of money into real estate properties which will help you in deductions OR even not paying the property tax.