Ideal Home Loan

Ideal Home Loan

How much should I borrow for a house? This is a question many have asked us.

Generally, you should not borrow above 50% of your take home salary. The other monthly payments such as insurance premium must be deducted while calculating repayment capacity. You also need to consider the tax benefits of home loan and the rate of interest on home loan while deciding on how much to borrow.

IDEAL HOME LOAN - Home loan of ` 16 lakh @10% for 15 years is an ideal position to optimize on tax benefits per person. EMI comes to ` 17,194 X 12 = ` 2,06,328. Out of this, interest payable during the financial year is ` 1,57,817 and principal repayment is ` 48,511. You can use the home loan EMI chart for calculating the right plan for yourself.In case of joint home loan, the limit of 16 lakh will be doubled accordingly. The loan amount also depends on the value of the house you are buying as the banks typically

allow only up to 85% of the total cost. The interest on home loan is deductible from your salary income, provided that you have obtained possession of the house. If the house is under construction, then interest will be accumulated till you get possession. Thereafter, deduction will be allowed in five equal installments for next five years, along with interest of that financial year. The total interest deductible is limited to ` 1.5 lakh for self occupied house. The interest rate of home loan has been on the rise. However, even today the effective interest rates are attractive i.e., home loan interest at 10% effectively gets reduced to 7% assuming you are in 30% tax bracket. Therefore, you should take home loan if you have the opportunity and risk capacity to

invest in equities and mutual fund, as the average return of equities is higher than 7-8%

effective interest rate on home loan. You can prepay home loan if the interest is being charged @12% or more, instead of keeping money in fixed deposits, bonds etc.(@9%).Another way of saving money is to take home loan with overdraft facility so that you can save interest by depositing additional funds in the home loan account. Banks like SBI, HDFC, and HSBC offer these loans as home saver, smart home etc.You can claim full interest in case of let out property, even if it exceeds Rs. 1.5 lakh.