A Home Loan is the most convenient way to finance your dream home purchase. It offers you the means to own a home, and earns you tax benefits as well. The intent of availing a Home Loan is not only to ensure liquidity but also to take the full advantage of Home Loan tax benefits. The best part is that the tax benefits are available to everyone.
The Tax Benefits on a Home Loan
The interest that you pay on the Home Loan is deductible up to Rs. 1.5 lakhs (self-occupied). You can claim the entire interest paid in case the house property is let out on rent. addition, if you ‘re a first time homebuyer, you can get an interest exemption up to Rs. 2 lakh, provided construction is completed within 5 years of taking the loan. An additional exemption of Rs. 50000 is available in respect of interest on loans up to Rs. 35 lakhs on cost of homes up to Rs. 50 lakh.
In addition to the interest deductions, you also get a deduction for principal repayment.
As a Home Loan borrower, your aim is to bargain for the lowest interest rates. This way, your loan gets cheaper. You enjoy lower EMIs, and a chance to close your loan account faster. This lets you gain ownership of your home sooner.
Listed below are a few possible ways by which you can save on the Home Loan.
Home Loan Balance Transfer
Your Home Loan repayments in the form of EMI comprises of principal plus interest. In times of falling interest rates, you can choose to opt for balance transfer and make your Housing Loan cheaper. Currently Home Loan rates are at a low, 8.5% is the best rate at which you can get a Home Loan. If you had availed a Home Loan a year back at 9.25%, exercising the balance transfer option can offer you a great amount of savings.
Compare the interest rates offered by different banks and choose the best rate. A Home Loan balance transfer can be effected by submitting an application to your current lender. After payment of transfer fees and crystallising your outstanding liability, the new lender settles the balance in your Housing Loan account and gains possession of the property documents. Your Housing Loan is now transferred to the new lender at lower interest rates.
While balance transfer does seem an attractive option to save on a Home Loan, do make a note that it involves costs as well.
Resetting the Interest Rate
While a balance transfer involves change in lender and additional paperwork, resetting your Home Loan with the existing lender is a simple process to reduce interest rates. All that you need to do is write to your bank asking for a reset of interest rates.
An interest reset can either lower the loan tenure while the EMI remains the same. The total interest outgo will drop and this can prove to be a substantial saving on the Home Loan. You can choose for an interest reset when you move from fixed rate loan to floating rate loan. Keep in mind that this switch involves cost, about 2% of your loan outstanding amount.
As a Home Loan borrower, you’re keen to save as much as possible. This can be achieved either through balance transfer or by resetting the interest rate. Which interest saving measure you choose depends on the loan tenure that is pending, outstanding balance in your Home Loan account, difference in interest rates and the time taken for executing the change. Weigh these factors, opt for the switch and save big on your Home Loan.