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Answered on Dec 24, 2019

Pavan Question by Pavan on Dec 24, 2019Hindi
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I stay in Bharuch, a city in Gujarat. I am planning to book a flat of 2bhk in this city. The apartment is still under construction and I need home loan to buy that home. My queries are:

  • How much per cent can I get home loan (I require 90 per cent of total cost). So it is possible by any bank?
  • If the apartment is under construction and I have applied for loan then what will be the EMI condition. Few say till I get possession of house I will be charged only interest as EMI while other says I will be charged EMI with interest and principal amount. So what is correct and best way to me to do?
  • Presently am staying in a rented house. So if EMI starts I will be in trouble as I need to pay both loan and house rent. So please guide me.

Ans: If the apartment cost is below 33 lakh then you can get a 90 per cent of the flat cost (not including stamp duty/registration charges) as a loan. 

As long as the project is registered with RERA and approved by the concerned lender you will get a choice between paying just interest till possession (called pre-EMI in banking jargon) or starting off the EMI on the disbursed amount. The choice is yours.

During the years in which the property remains under construction no tax benefits are available for any loan payment – whether interest or principal. 

Finally, don’t buy under-construction flats where delays are rife. Just buy a ready to move in flat.

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Hi, Earlier, i had asked a question regarding a home loan i have. following is my question. "Hello Sir/Madam, I bought an apartment from a standard builder in Hyderabad. the possession of house supposed to happen after an year. So, i have taken house loan from a Bank for this house. Now, i have started the regular EMI for this with interest rate of 9%. so, my question is, monthly i have some surplus amount after the EMI and expenses, is it good idea to use that for repaying my home loan or do i need to wait till possession. My wife suggests to wait till the possession, then start repaying. Please suggest what do you think is better?" the answer i got was : yes, repay the house loan as the interest rate is high. However, as the possession of the apartment happens only after an year, is it good idea to repay the loan or not. the builder is a standard builder from Hyderabad. If we don't repay the amount any risk from builder is borne by the Bank, not me, hence i am asking this question. So, please answer. thank you Nagaraju
Ans: Unfortunately, I don't have access to your previous queries.Best Regards,

But generally, for a home loan with a high interest rate of 9%, it's usually recommended to start repaying the loan as early as possible to minimize the total interest paid over the loan term. Even though you haven't received possession of the property yet, repaying the loan can bring you benefits like:

Reduced interest burden: The sooner you start repaying, the less interest you will accrue over the loan term.
Improved credit score: Regular EMI payments can improve your credit score, making it easier to secure loans in the future and potentially at better interest rates.
However, there are also some factors to consider before making a decision:

Prepayment penalty: Some banks might have prepayment penalties for paying off the loan before the end of the term. Check your loan agreement for any such clauses.
Need for emergency funds: It's important to maintain an emergency fund to cover unexpected expenses. Ensure you have sufficient funds set aside before using your surplus for loan repayments.
If you're unsure about whether to start repaying the loan now or wait until possession, it's advisable to consult with a financial advisor. They can consider your specific financial situation and recommend the best course of action.
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Mutual Funds, Financial Planning Expert - Answered on Jul 18, 2024

Asked by Anonymous - Jul 07, 2024Hindi
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I am living on rent, and now I have searched and seen a residential property that is flat(constructed in 2007) at ground floor in a society, which is for sale and may be cost up from 18 L to 22 L final talk not done, within two months my matured savings would be 11 lakh also having a pf balance of 1.5 to 2 lakh and ornaments of about 10 Lakh I have two daughters age19 years and 14 years If I do not disturb the gold and pf balance I would be in need of home loan of about 10-12 lakh So, is it wise to take home loan Alongwith SIP of amounting 10 percent of emi only Or if I finish all the savings and asset I would required no loan and will opt to purchase a gold of 15000 every month My take home salary is 39500 Please suggest which one of both is better Or if you have any other suggestion please guide
Ans: Buying the Property: Assessing Your Options
You are considering purchasing a flat priced between Rs 18-22 lakh. You have Rs 11 lakh maturing soon and Rs 1.5-2 lakh in PF balance. You also have gold worth Rs 10 lakh. You are contemplating whether to take a home loan of Rs 10-12 lakh or use your savings and assets.

Evaluating the Home Loan Option
Pros of Taking a Home Loan:

Liquidity: You maintain liquidity by not using all your savings.
Tax Benefits: Home loans offer tax benefits under Sections 80C and 24(b).
SIP Continuation: You can continue your SIPs, growing your investments over time.
Cons of Taking a Home Loan:

EMI Burden: Monthly EMIs can strain your take-home salary of Rs 39,500.
Interest Cost: You pay interest on the loan, increasing the total cost of the property.
Financial Stress: Managing EMIs and other expenses might be challenging.
Evaluating Using Savings and Assets
Pros of Using Savings and Assets:

Debt-Free: No loan means no EMI burden.
Interest Savings: You save on interest costs.
Financial Freedom: No monthly EMI, allowing better cash flow management.
Cons of Using Savings and Assets:

Reduced Liquidity: Using all savings and assets reduces your emergency fund.
No SIPs: Stopping SIPs might impact long-term wealth creation.
No Tax Benefits: You miss out on home loan tax benefits.
Analyzing Monthly Cash Flow
Your take-home salary is Rs 39,500. Let's analyze the cash flow for both options:

With Home Loan:

EMI (Assumed): Rs 10,000 (approx)
SIP (10% of EMI): Rs 1,000
Total Outflow: Rs 11,000
Remaining cash for expenses and savings: Rs 28,500

Without Home Loan:

Gold Purchase: Rs 15,000 per month
No EMI: Rs 0
SIP Continuation: Assuming Rs 1,000 (for continuity)
Remaining cash for expenses and savings: Rs 23,500

Considering the Future
Children's Education: Your daughters are 19 and 14. Higher education costs might rise soon. Ensure you have funds for their education.
Emergency Fund: Maintain an emergency fund for unforeseen expenses.
Retirement Planning: Continue to invest for your retirement.
Professional Insights and Recommendations
Balanced Approach: Consider a mix of both options. Use part of your savings and take a smaller home loan. This keeps some liquidity while reducing loan burden.
Prioritize SIPs: Ensure you continue your SIPs. SIPs are crucial for long-term wealth creation.
Gold Investment: Buying gold every month can diversify your portfolio. However, consider market fluctuations.
Emergency Fund: Always maintain an emergency fund. Avoid exhausting all savings on the property.
Tax Benefits: Utilize home loan tax benefits if you opt for a loan. It can reduce your taxable income.
Final Insights
Buying a property is a significant decision. Evaluate all aspects before proceeding. Consider both immediate and future financial needs. Balancing liquidity, tax benefits, and long-term investments is key. Make a decision that aligns with your financial goals and stability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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