BUYER's GUIDE

STAMP DUTY

Stamp duty is a tax imposed on the sale of property/property ownership by the state government.

In case you avail a home loan for the same, the stamp duty and registration charges can be included in the loan amount, provided the value of the property is up to Rs.10 lakh. Stamp duty is paid so that the property is transferred in the buyer’s name and the property’s documents are registered. Stamp duty varies from state to state and registration cost is typically 1% of the value of the property. Stamp duty is usually in the range of 4-10% of the value of the property. It is preferable if you avoid taking a loan for stamp duty and registration fees.

EMI

EMIs are important, as they can help finance anything, from a smartphone to an entire apartment.

An equated monthly instalment (EMI) is a set monthly payment provided by a borrower to a creditor on a set day, each month. EMIs apply to both interest and principal each month, and the loan is paid off in full over some years.

The affordability of your property loan primarily rests on your EMIs as this is the amount you need to pay consistently through the entire tenor of the loan. This is why before applying for a loan against property, it is important that you carefully select a lender who gives you a sanction on nominal interest rates. Getting financing on reasonable housing loan interest rates will ensure that the interest obligation towards your loan is kept under check. This maximises your affordability, allows you to pay lower EMI and help you manage your finances better.

LOAN

Earlier the bank loans including home loans are linked to the base rate are now linked to the bank’s marginal cost of funds based lending rate (MCLR) from 1st April 2016. There are four important things to know about MCLR before approaching a bank for Home Loans.

1. MCLR Rate-

Banks can publish any time period for MCLR rates each month. For home loans, 12 months of MCLR rates can be given by the Bank. The average of it can be 9.35 per cent or higher for the actual home loan after the mark–up.

2. Mark-up on MCLR-

The rate of the MCLR or the Mark-up can be equal to the actual Home Loan interest rate but it cannot be lower than the MCLR rate. A Bank may ask for the Mark-Up before lending at MCLR. In general, the mark-up rate is somewhere between 0.25-0.5 per cent, it might increase the credit profile if the borrowers are unstable. Every bank has the right to adopt its own policy on deciding the components of its spread. If the bank’s MCLR is 9.00 per cent, the actual Home Loan interest rate could be 9.20 per cent with 0.20 mark-up. Banks with the lower home loan interest offers are to be chosen by most people and not the lower rate of MCLR.

3. Reset loan period-

The MCLR re-prices the home loan interest rate occasionally. According to RBI rules periodicity of reset shall be one year or lower. The exact periodicity of reset shall form part of the terms of the loan contract. The changes will happen after 12 months if the loan is linked to the bank’s MCLR. However, most banks offer home loan linked to their one-year MCLR which is reorganised on an annual basis. If the RBI cuts repo rate and someone took home loan before that though banks MCLR comes down in the same month, the effect of it for the borrower will be seen next year during the time loan was taken.

4. Home Loan with a Fixed Interest Rate VS Floating Interest Rates-

Home Loans with the fixed interest rate is to be repaid for the home loans in fixed installments during the entire period it consists of. During the early part of the loan tenure, the majority of monthly payments are used to service the interest and the principal is served in the later parts of the tenure. On the other hand, floating interest rate by name implies that the rate of interest varies with market conditions. Home loans on floating interest rates are tied to a base rate plus a floating element thereof. So, if the base rate varies the floating interest rate also varies. The Floating home loan rates are flexible and may get cheaper than fixed interest rates intermittently and that is its biggest benefit. As a drawback, the fluctuating interest rates are irregular in nature of monthly installments. This makes it difficult to budget with floating interest rate home loans. In the end, it is up to the borrower to decide what suits him best. Before taking a choice, it is advisable for the borrower to compare home loans from different organizations in the element, including the numerous limits set out. If inevitability and security are prime thoughts, a fixed rate home loan will be the best. However, it won't come without the best on interest rates.

1. Repayment of the Principal Amount: Under Section 80C of the Income Tax Act, the amount paid as Repayment of Principal Amount of Home Loan by an Individual is allowed as tax deduction. The maximum tax deduction allowed under Section 80C is Rs. 1,50,000. However a tax benefit of home loan under this section is allowed only after the construction is complete and the completion certificate has been awarded. No deduction would be allowed for repayment of principal for those years during which the property was under construction.

2. Repayment of the Interest on Home Loan: Under Section 24 of the Income Tax Act, tax benefit on home loan for payment of interest is allowed as a deduction. The income from house property shall be reduced by the amount of interest paid on home loan where the loan has been taken for the purpose of purchase or construction, repair or renewal or reconstruction of a residential house property. The maximum tax deduction allowed of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs.

BUYER's GUIDE

STAMP DUTY

EMI

LOAN

TAX BENEFITS

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