I will be taking a home loan from a financial institution for tenure of 20 years. However, in the sanction letter, it is mentioned that I will have to take insurance coverage for the loan amount from an insurance provider they have a tieup with. Is this legal?
—Tarun Lamba Most banks only provide insurance facility as an add-on (for which the borrower needs to pay extra amount) and if the borrower has not chosen the facility then there is no insurance cover. Buying such insurance from the insur- ance company which has a tie-up with the lender is not compulsory. If the bank insists on the insurance, you can always buy a policy from any other insurance company and assign the same to the lender. However, it is in the interest of your dependents that you take a term insurance plan and a critical illness plan so as to cover the amount outstanding on your loan account to at least co-terminate with the tenure of your loan. This will ensure that your dependents are not bur- dened with the home loan, should anything untoward happen to you. You will need to assign the policy to the lender. If your lender is not agreeing, there are plenty of other lenders in the market who will agree to accept insurance policy from other insurance companies. I have bought a flat in Navi Mumbai in October 2010 against which I took a loan of R19 lakh. In July 2011, I sold a flat in Pune for R20 lakh. This flat was seven year old. Can I use the proceeds from this sale to square off my loan and thus also not attract any long-term capital gains tax?
Since you have purchased a flat within one year before sale of your house, you can claim exemption in respect of capital gain arising from sale of your Pune flat. Arguably, it will not matter how you funded the flat purchase. It will also not matter how you use the proceeds of the sale of your house as long as you satisfy the condition of having purchased one house within one year before sale of the other house. The quantum of exemption from capital gains is proportionate to the amount of capital gain – and can be determined by the amount invested in your new house. Since you have not specified the cost price of your old house and purchase price of the new house, it is not possible for us to tell the extent to which you will get the tax exemption.
I am planning to withdraw my entire provident fund balance that I have saved in the last five to six years. I thought of doing a part payment for my home loan and keep some liquid cash for critical times. Please advise if this is a smart idea.
—Sharad Deep Provident fund is meant to be your retirement fund and hence should not be touched as far as possible. In any case, withdrawals from the PF are available only after five years. Withdrawal will not be allowed from your employee PF for partial pre-payment of home loan. It is advisable to continue repaying the loan EMI’s from your current income. As far as making partial pre-payment of the loan is concerned, it is a good option only if you have sur- plus funds and you are sure that you will not need these funds in the near future. In case we take a home loan and the project gets delayed, is there any provision to safeguard us from spiralling bank interest?
- Rakesh Singh No. Even of the builder delays the project, you must continue to pay the loan or the pre-EMI to avoid being shown as defaulter with delays in your credit history. This will impact your future ability to get a loan or credit card. Please service the loan even if the project is delayed to ensure clean credit history.