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HT Estates - - HTESTATES - Harsh Roongta

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.

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