I need a home loan of ₹ 5 lakh, which I would pay back in five years. Should I go for a home loan or a personal loan?
–Sudesh Bansal If you are taking a loan to buy a property, it is always advisable to take a home loan and not a personal loan as home loans are far cheaper in addition to having a longer repayment tenure, thus giving you more flexibility.
Tax benefits with respect to interest can be claimed on either of these two loans if you can prove that the loan was taken to acquire residential property. However, tax benefits under Section 80C will only be available if the loan has been taken from specified institutions/ entities like banks, housing finance companies, governments, public limit companies etc. So even if you want to repay the loan within five years, take a home loan,
I am a salaried employee and have taken a home loan from the employees’ credit society in my company. Now, I am planning to resign and join another company. I was informed that I would have to repay the entire outstanding amount on the loan when I leave the company. What can I do to gather funds to pay off the loan? Can I transfer the loan to another bank?
– Sudarshan Kumar You can definitely transfer the home loan to a new lender and prepay the loan to your existing lender. This prepayment may come with a fee, which is usually 1% to 2% of the principal amount prepaid in case the employee’s credit society charges you the same. Employee credit societies are not covered by the Reserve Bank of India regulations banning prepayment charges. You can check with employee’s credit society for prepayment fee details. The new lender will treat it as a transfer of home loan. Interest rates for transfer loans are similar to new home loans for most banks.
I am planning to take a home loan. Which is better – a long term loan (15 plus years) or short-term loan (less than 10 years)?
– Devendra Sharma If loan eligibility is not an issue, then you should go for a short tenure depending on your budget. Remember, the shorter the tenure, higher will be the EMI per lakh. (For example, at 9%, the EMI per lakh for 20 years is ₹ 900, for 15 years, it is ₹ 1,014 and for 10 years it is ₹ 1,267. As the EMI increases, your loan eligibility decreases. For a net income of ₹ 50,000 per month in the same example, the loan eligibility will be ₹ 25 lakh for 20 years (50 times your net monthly income) ₹ 22 lakh for 15 years (44 times your net monthly income) and ₹ 18 lakh for 10 years (36 times your net monthly income). If loan eligibility is a concern, the best bet would be to take a home loan with as long a tenure as possible as there are no prepayment charges. This way you get better loan eligibility without undue stress on your monthly cash outflow. At the same time, you can prepay the loan when liquidity permits you to do so without a prepayment penalty.