I have a dual rate home loan of ₹ 15 lakh over a seven-year term or payable in 84 installments from January 2011. My monthly EMI is
₹ 23,896. If I repay it fully within four years, would I then get any interest benefit?
— Rohit Agarwal Prepayment will result in savings in interest though it does not bring down the percentage cost of borrowing. Secondly, you won’t have to pay any penalty on foreclos- ure of loan even if it is in the fixed rate stage as NHB (National Housing Bank) has banned prepayment charges for loans prepaid from own sources of income even if they are at a fixed rate.
Remember that the decision to prepay the existing home loan is dependent on several factors. First and foremost are the income tax benefits available on the existing loan. You should also take into account the post-tax returns on alternative investment options available to you and compare it against the post-tax interest cost of the loan.
You should also note that before you opt to prepay your home loan, it is always advisable to pay off all other debts on which you are paying higher interest because the rate of interest on such borrowings is normally higher than home loans. Ensure that you keep some funds available to meet any financial contingency.
We have purchased an under-construction flat in Thane and the cost of the flat is around ₹ 61 lakh. The flat is in the name of our son (primary), and our names (parents) are secondary. We got a sanctioned loan of ₹ 22 lakh in the name of our son and we have already paid the margin money. He is now getting married and would like to know by virtue of his marriage if an additional loan of ₹ 14 lakh could be acquired by his wife although her name does not appear in the sale agreement which is stamped and registered. We are willing to relinquish our rights over the said flat by executing a gift /surrender deed in her favour. Is there any other way of securing a home loan in her name for the above flat?
— Mrinalini Dasgupta If you and your son are co- owners in the property, then every lender will insist that you all will have to be coborrowers to the home loan. Removing your name as coowners or adding the name of your future daughter-inlaw will have stamp duty/ registration charges implications. After your son’s marriage, you can transfer the home loan to another bank and add the name of your daughter-in-law as a co-borrower in the process. The bank may consider an additional loan amount if the joint income of all of you and the property values justify the additional loan. The additional loan amount may have a higher interest rate.
You will need a track record of payment of your EMIs in time to be able to get an offer from another lender to take over your existing loan. Please note that your daughter-in-law will not be eligible for any tax benefits if she is not a co-owner to the property as well. You will only get additional loans if your daughter-in-law is earning and has sufficient income to service the required additional loan.
Harsh Roongta is CEO, Apna Paisa. He can be reached at firstname.lastname@example.org