CHEQUE BOOK

HT Estates - - HTESTATES - Harsh Roongta

I’m plan­ning to take a home loan of ` 10 lakh from a bank at a fixed rate of 10.25% for the first two years, af­ter which I plan to switch over to a float­ing rate of in­ter­est. Should I go for a ten­ure of 15 years or 20 years? What are my in­vest­ment op­tions? Should I con­sider re­pay­ing my loan as quickly as pos­si­ble?

- Ajay Bhaskar If you are likely to be in a po­si­tion to pay the loan quickly as you might have sur­plus funds in the fu­ture, you should look at us­ing the over­draft home loan fa­cil­ity of­fered by banks. Your sur­plus money lies in an over­draft ac­count and ef­fec­tively re­duces the in­ter­est amount on the home loan.

Here you have a cur­rent ac­count linked to your home loan ac­count with the same bank. You can then de­posit or with­draw from this cur­rent ac­count just like any other cur­rent ac­count. Ev­ery month when the loan in­stall­ment is paid, in­ter­est at the ap­pli­ca­ble rate is cal­cu­lated on the ag­gre- gate prin­ci­pal out­stand­ing af­ter tak­ing into ac­count the bal­ance, if any, in the linked cur­rent ac­count.

The ad­van­tage of this over­draft ac­count is that it al­lows you to use both your tem­po­rary and per­ma­nent cash sur­pluses to re­duce your in­ter­est li­a­bil­ity on your home loan, and at the same time re­tain the flex­i­bil­ity of with­draw­ing the sur­pluses for other uses as and when you may re­quire. This ef­fec­tively helps you to earn in­ter­est on your cur­rent ac­count bal­ances.

Putting money in the linked ac­count is as good as pre­pay­ment. Ad­di­tion­ally, it gives you the flex­i­bil­ity to take back any por­tion of pre­pay­ment if you so de­sire. As long as you keep the ex­tra money de­posited in the ac­count, it serves your pur­pose of pre­pay­ment and gives you the buf­fer avail­able bal­ance in case you need it.

If you choose this, then you should go in for the long­est ten­ure since it will give you lower EMI com­mit­ment and let you save on in­ter­est with the sur­plus that you have.

The an­swer to your ques­tion on whether you should re­pay your loan quickly will de­pend on whether you can earn higher post-tax re­turns on your sur­plus funds.

This de­ci­sion will also de­pend on one’s pref­er­ence to be debt-free at any cost.

I bought my house five years ago through a home loan. I re­side here cur­rently but I want to sell it and move into an­other house that I have fi­nalised. If I find a buyer who can pay me the ini­tial amount in cash/cheque, I will be able to set­tle my prin­ci­pal out­stand­ing with the bank and get my pa­pers re­leased. Al­ter­na­tively, if the pur­chaser goes for a home loan, can my ex­ist­ing loan be trans­ferred to him/her? Which of the two cases is bet­ter?

- Vaib­hav Sharma Please note that in case you trans­fer the property within a pe­riod of five years from the end of the fi­nan­cial year dur­ing which pos­ses­sion of the property was taken, then all the tax ben­e­fits availed un­der sec­tion 80 C on this property shall be treated as in­come of the year in which such property is trans­ferred. In the first case where the buyer is able to pay the ini­tial amount, you can pay the loan and ob­tain the property documents. Com­ing to the sec­ond case, there is no such thing as trans­fer of home loan. In case you want to sell the property, you will need the bank’s con­sent for the same as long as there is any amount out­stand­ing.

This con­sent let­ter will pro­vide the amount, on pay­ment of which the out­stand­ing loan will be fully paid. Harsh Roongta is CEO, Apna Paisa. He can be reached at ceo@ap­na­paisa.com

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