Frequently Asked Questions
1.What is a Home loan?
Home Loan is a secured loan disbursed by a bank against the security/hypothecation of an underlying property. In the event of failure to repay by the borrower, the bank can, subject to laws of India, attach/sell the underlying property and recover the principal amount and any outstanding interest thereon. A home loan can be availed for buying an under-construction property, resale property or even to construct a house on a vacant piece of land.
2. What does an EMI mean?
EMI refers to the ‘Equated Monthly Installment’ which is the amount one pays on a specific date each month till the loan is repaid in full. The EMI comprises of the principal and interest components which are structured in a way that in the initial years of loan, the interest component is much larger than the principal component, while towards the latter half of the loan, the principal component is much larger.
3. What does the market value of the property mean?
Market value of the property refers to the estimated amount that is expected to be fetched on the property as per the prevailing market conditions.
4. What does “Agreement to sell” means? Does it have to be registered?
The ’Agreement to Sell’ in a property transaction is a legal document executed on a stamp paper that records in writing the understanding between the buyer and the seller, all the details of the property such as area, possession date, price etc.
In many Indian states, the Agreement to sell is required to be registered by law. We suggest that in your own interest you should register the Agreement within four months of the date of the Agreement at the office of the Sub-Registrar appointed by the State Government, under the Indian Registration Act, 1908.
5. How much loan can be availed?
To calculate the borrowing limit, one can combine the earnings of oneself and the spouse or children. The combined income will then decide the borrowing limit. Minimum limit is INR 300,000 and Maximum limit depends on the combined earnings. For loan up to INR 2 Million - 15% of the property value in the market is considered. For loan above INR 2 Million to up to INR 7.5 Million - 20% of the property value in market is considered. Any loan amount higher than INR 7.5 Million - 25% of the property value in the market is considered.
6.What are the eligibility conditions to apply for the home loan other than the normal conditions?
Some of the eligibility conditions are: Age of the primary applicant, number of dependents in the family of the applicant, Assets and liabilities like existing loans and income returns of the primary applicant's occupation.
7. Can I avail a loan if I want to renovate my home or flat?
Yes, absolutely. One can avail home loan for buying a home, constructing a home, repairs of your home, home improvement and its renovation as well.
8. Am I bound to pay only by the fixed rate of interest?
No, you get the opportunity to choose which kind of rate of interest you wish to pay. You may pay through fixed rate of interest or you may pay by the floating rate of interest depending on the MCLR (Marginal Cost of funds based Lending Rate) that keeps changing.
9. What is the procedure for availing the home loan?
To begin with, the applicant requires filling in the details and submitting the application form along with all relevant but specified documents. On scrutiny of the submitted documents and on meeting all the eligibility criteria, the bank sanctions the loan by notifying the customer about the same within 30 days of the submission of the documents and the application form. This 30 day submission period starts from the day the customer gets the receipt of the application form. If the loan so applied cannot be sanctioned, customer shall be notified about the same as well. Subsequently, the legal proceedings shall follow. Further, Bank representative will carry out the technical evaluation of the property as per the defined parameters.
10. Are there any fees charged for availing Bank home loan?
Yes, the application fees is charged in the form of a processing fees which will anyway be less than 1% of the loan amount sought along with the applicable taxes.
11.How is an Equated Monthly Instalment (EMI) calculated?
It is calculated on the basis of the principal loan amount, the tenor of the loan and the chargeable interest - floating or fixed – as the case may be. After part payment or change in interest rate, the EMI is also bound to change accordingly.
12. What is the due date of Equated Monthly Instalment (EMI)?
The due date will be fixed and communicated to you.
13. What do we mean by Pre-EMI interest?
Where you have availed only a part of the loan, you would be required to pay only the interest on the amount disbursed till the full loan is availed. This interest is called pre-EMI interest (PEMI) and is payable monthly till the final disbursement is made, after which the EMIs would commence.
14. What if my floating rate of interest increases? Does that mean I will have to pay bigger amount of EMI?
Whenever there is an increase in the rate of floating interest, the concerned Bank will try to increase the loan tenure. However, if this impacts the rate of interest, then EMI will have to be increased as well.
15. Can I get my EMI increased instead of getting my loan tenor increased?
Yes. It may be considered in some cases provided certain conditions are fulfilled i.e. primarily your loan paying capability. For this, the bank requires the following documents for verification:
• Salary slips for Last 6 months.
• Bank statements indicating regular salary.
• Photo identity and address proof.
• A letter for the change signed by you.
16. My EMI has been increased due to an increase in the rate of interest (flexible). Can the bank help me for lower EMI?
In the event of increase in the rate of floating interest, usually Banks would try to increase the loan tenure. However, if this impacts the rate of interest, then EMI will have to be increased. If you want to get your EMI reduced in the latter case, you are advised to make some part pre-payment to concerned Bank.
17. After I availed a home loan from the Bank, the rate of interest that I opted for has increased. Can the Bank help me in this case?
Certainly Bank does help you to switch rate of interest provided you are agreeable for the following switching amounts: Fee while switching from higher floating rate to lower is 0.5% of the outstanding principal amount. Switching fees from floating rate to fixed rate of interest is 1% and cannot be greater than INR 10,000. Fee chargeable while switching from higher fixed rate to lower fixed rate is 0.5% of the outstanding principal amount. Also, switching fee from fixed rate to floating rate of interest is 2% of the outstanding principal amount.
18. Do I get tax benefit through Bank home loan?
Yes indeed. The citizens of India are entitled to avail tax benefit under the IT act of the Income tax of India.
19.What are the options through which I can pay my EMI?
EMI can be paid through various modes: a. Postdated cheques: You can submit postdated cheques by due date of the EMI at the nearest Bank loan centers. b. Electronic Clearing Service: By choosing this option, Bank account holders can pay their EMIs automatically at the end of the month. c. Standing Instruction: If you have a savings, salary or current account with a Bank, then your EMI can be automatically deducted from any of these accounts at the end of monthly cycle.
20. Where do I submit the set of postdated EMI cheques?
You can pay these cheques at any of the nearest Bank loan centers.
21. What are the Income tax benefits on home loan?
Homeowners can claim a deduction of up to Rs.2 lakhs on their home loan interest if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2 lakh rebate. Following are the conditions to claim the Rs.2 lakhs rebate-
1. The home loan must be for purchase and construction of a new property
2. The loan must have been availed on or after 1 April 1999.
3. The purchase or construction must be completed within 3 years from the end of the financial year in which the loan was availed.
22. When is the deduction limited to Rs.30,000?
If the construction of the property is not completed within 3 years, the deduction on home loan interest shall be limited to Rs 30,000.
The period of 3 years is calculated from the end of the financial year in which loan was availed. So if the loan was availed on 30th April 2015. The construction of the property should be completed by 31st March 2019. (This period has been extended to 5 years in Budget 2016 which is applicable from the financial year 2016-17)
Also, where the loan has been taken for reconstruction, repairs or renewal, only Rs.30,000 shall be allowed as deduction.
Note: The deduction can only be claimed, starting in the financial year in which the construction of the property is completed.
23. How do I claim a tax deduction on a loan availed before the construction of the property is complete?
Deduction on home loan interest cannot be claimed when the house is still under construction. It can be claimed only after the construction is completed. The period from borrowing money until construction of the house is completed is called pre-construction period.
Interest paid during this time can be claimed as a tax deduction in five equal installments starting from the year in which the construction of the property is completed.
24. What are Stamp duty and registration charges?
Stamp duty and registration charges and other expenses related directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs.1,50,000. These expenses are to be claimed in the same year of making the payment on them.
25. What is the Tax Deduction for First-Time Homeowners under Section 80EE?
Section 80EE recently added to the Income Tax Act provides a first-time homeowners tax benefit of up to Rs.1,00,000.
26. How to claim tax deductions on home loans?
• The amount of deduction you can claim depends on the ownership share you have on the property.
• The home loan must also be in your name. A co-borrower can claim these deductions too.
• The home loan deduction can only be claimed from the financial year in which the construction is completed.
• Submit your home loan interest certificate to your employer to adjust tax deductions at source accordingly. This document contains information on your ownership share, borrower details and EMI payments split into interest and principal.
• Otherwise, you may have to calculate the taxes on your own and claim the refund, if any, at the time of tax filing. It’s also possible that you may have to deposit the dues on your own if there is a tax payable.
If you are self-employed or a freelancer, you don’t have to submit these documents anywhere, not even to the I-T Department. You’ll need them to calculate your advance tax liability for every quarter. You must keep them safely to answer queries that may arise from the I-T Department and for your own records.
27. What are those Tax benefits applicable on home loan for joint owners?
The joint owners, who are also co-borrowers of a self-occupied house property can claim a deduction on interest on the home loan up to Rs 2,00,000 each. And deduction on principal repayments, including a deduction for stamp duty and registration charges under Section 80C within the overall limit of Rs 1,50,000 for each of the joint owners. These deductions are allowed to be claimed in the same ratio as that of the ownership share in the property.
You may have availed the loan jointly, but unless you are an owner in the property – you are not entitled to the tax benefits. There have been situations where the property is owned by a parent and the parent and child together avail loan which is paid off only by the child. In such a case the child, who is not a co-owner is devoid of the tax benefits on the home loan.