HOUSING FINANCE SCHEMES NEEDS EVALUATION FOR EASY REPAYMENTS AND TAX BENEFITS

Owning a house or property in India is lifetime dream of every indian and may be first in the wish list. Owning property or house in the native places has been a matter of proud and self respect for Indian community. Jamindar has been the persons who owns the Jamin/land and engage labours for cultivation or development. Around ten years back Indian could plan the house or property after retirement only from the money of graduity/PPF etc. but in the present time the scenerio has changed and owning a house/flat has become dream of every young individual having a good salary package.

The easy availability of housing loans has made easy the road to the new house. Every young executive in multinational/I.T. company has dream of having well located flat of own along with all the facilties specifically when both husband and wife are working. Thanks to funding agencies and anticipated lowering of interest rates. For every loan seekers it is very important to understand the various conditions of loans and the factors related to property opted. It is very important to undestand the EMI to be paid aganist loan and the repayment capacity in volatile market conditions.

In case of any confusion the home loan expert can be consulted and option can be given for most suitable options. The financial institutions offer a variety of home loans. Home purchase loan, home improvement loan, home extension loan, land purchase loan, home conversion loan, bridge loan and balance transfer loans.Depending on the requirement, repayment capacity the optimum option can be opted. Banks also offer some lenders package freebies with their products like free property or accident insurance, waiver of prepayment penalty and so on.Lenders offer a plethora of options for the prospective homeowners. You can choose from numerous schemes that suits your financial needs, age and risk appetite. Fixed, floating, hybrid, step-up , step-down - they are aplenty.

FIXED OR FLOATING?

The first dilemma that pins a borrower down is the choice between fixed and floating rates. In case of fixed rate of interest, the rate of interest remains
unchanged for the entire duration of the loan.  This means you do not benefit, even if rates of interest drop in the market. On the brighter side, you won't have to shell out a penny more, even if rates are moving up. The fixed rates option can be adopted if the prevailing interest rates are seems to be at the lowest point. 

 
They come with a reset clause that empowers banks to increase the rate of even a fixed rate loan. Further, these are a few points more expensive than a floating rate loan, floating rate of interest fluctuates in sync with the market lending rates. The borrower can end up paying more than he budgeted for, if the lending rate goes up.

Floating rates are for borrowers who can anticipate rate fluctuations and stay calm in turbulent times.

HYBRID LOAN

 This is a combination of both - fixed as well as floating rates. It is sometimes referred to as partly fixed, partly floating home loan. Under this scheme, a part of your loan is locked under fixed and the remaining is exposed to the adjustable rate of interest - the floating rate.
   
The borrower can decide what percentage he wants to expose to fluctuations in rate and what percentage must be locked as fixed.

STEP-UP LOAN

This is a flexible, innovative product designed specially for young borrowers. It offers varying equated monthly installments (EMIs) spread over the loan's tenure.

During the initial years of the tenure of the step-up loan, the EMIs are small. This makes the loan affordable for the young workforce that has started making money and holds tremendous growth prospects.

As the years roll by, the EMI outflow increases. It is assumed that the borrower will grow up the corporate ladder, get promotions and earn high increments. Hence, though EMI increases with time, it remains affordable for the borrower.

STEP-DOWN LOAN

 In case of a step down loan, the EMIs are huge initially. It is meant for borrowers close to their retirement years. These borrowers are at the peak of their
earning potential. However, once they retire their earnings shrink. In alignment with their earning capacity, their EMI installments come tumbling down. In a
stepdown loan, the burden of EMIs drops with time. Hybrid loans are a safe option for borrowers, as they offer dual benefit of fixed rate loans as well as floating rate loans.

The scheme minimises the impact of any adverse changes in the interest rates. At the same time, the borrower can benefit from any favourable changes in the market. Weigh your options well and pick a scheme


OPTING PROPERTY ON JOINT NAME:

While purchasing property, you can opt for a joint loan with your spouse. In case both husband and wife are working or have separate sources of income, they can go in for a joint loan. This way the loan amount also increases. Under the Income Tax Act, tax benefits are available on home loans and the interest paid on them. In case of joint loans also, all the co-borrowers can get tax benefits. A bit of documentation and planning can go a long way in avoiding hassles at a later stage.

You can also take the maximum advantage of the available tax provisions and benefits. It needs to be ensured that both should be co-owners of the property. A co-owner of a house must be a co-borrower as well. It is essential for a coborrower to be a co-owner in order to claim tax benefits. You cannot get tax benefits if you are only a co-borrower and not a co-owner.

Co-borrowers, who are also co-owners, are eligible for the tax rebate in the proportion to their share in the loan. The repayment capacity of each spouse will
be taken into account while arriving at the share of the loan. The shares of the loan may be in any ratio. The tax benefits would be shared in that proportion only.

You have to specify the share of the property and other loan details on a stamp paper. In case a husband and wife pay Rs 1 lakh as interest and Rs 25,000 as principal, each has an equal share in the borrowing, and each can claim Rs 50,000 towards interest and Rs 12,500 towards principal in their respective income tax returns.

The maximum tax deduction for a single borrower is Rs 1.5 lakhs. This deduction would apply to each borrower.  In case one of the co-owners does not have any income, the other co-owner should enter into an agreement with the spouse. The agreement should state that the entire repayment is met by only one borrower’s income. This would ensure that the main applicant will have 100% beneficial home ownership, and consequently, he can avail all the tax benefits applicable to a single borrower.

As far as repayment of the loan is concerned, it may be repaid from a joint bank account, where both the husband and wife share funds. Another option, although less popular, would be to share out the EMIs between the husband and wife, and both issue a specified number of cheques towards the loan repayment. It would need to be ensured that the repayment of the loan is made in the same ratio as the joint

borrowing. Further, each of the borrowers should have a demonstrable source of income to justify the repayment of loan. Each borrower needs a copy of a borrower’s certificate. It has to be provided to claim their respective tax relief. A co-borrower should enter into a simple agreement with the spouse on stamp paper of Rs 100. This agreement should basically contain the shares of the ownership along with That of the home loan availed by the couple.The borrowers should take two copies of the interest and principal paid certificates from the bank and each can submit a copy of the certificates along with a copy of the agreement signed between them.