Borrowers who have opted for floating rates of interest on their home loans can be subjected to highly inflated rates depending on the market conditions. Contrastingly, in case of rate cuts by the Reserve Bank of India, borrowers with floating rates of interest can avail the benefit of low-interest rates.
In case a consistent hike in interest rates of a home loan is estimated over a lengthy future, it is especially necessary to take a few steps to cope with the additional financial pressure.
The different options to handle high-interest rates are discussed below.
Prepayment
Prepayment is a facility that allows a borrower to repay a large portion of their home loan amount with a single lump-sum payment. More specifically known as part prepayment, the facility reduces the overall repayment amount. Consequently, while the rate of interest does not go down, the total payment of interest decreases. With a reduction in tenor or EMI amount, borrowers effectively have to pay lesser.
Income Tax Benefits
Under the Income Tax Act, there are numerous tax benefits for home loan borrowers. This includes home loan interest tax benefit as well as that on the principal sum. The different sections under the Income Tax Act are listed below.
- Section 24(b): This section offers tax exemptions up to Rs.2 lakh on the interest of a home loan. In case the house is let out, interest can be claimed on any amount. Both of the joint borrowers can avail this exemption.
- Section 80C: Under this section, tax exemptions are offered on the principal amount up to Rs.1.5 lakh. To be claimed only after the completion of a house in case of a construction loan, the concerned house cannot be sold within the next 5 years after claiming the exemption.
- Section 80 EEA: Among everything one needs to know about saving tax when taking a home loanfor the construction of their first house, this section is vital. For home loans for houses with a stamp value of less than Rs.45 lakh, an additional tax benefit on a sum up to Rs.1.5 lakh is offered.
Balance Transfer
A loan balance transfer is a facility offered by a few financial institutions. It allows a borrower to transfer their existing loan amount to a different financial institution to avail better rates of interest. It is advisable to calculate the exact loan amount with an online loan EMI calculator. This allows a customer to not just compare the different rates offered by various financial institutions, but also factor the other charges.
While the primary reason to avail this facility is reduced rates of interest, there are other reasons why a borrower should be choosing a home loan balance transfer facility. This includes the option to avail an additional line of credit on the loan amount, which acts as a top-up loan.
Reduce Tenor
Financial institutions consider longer repayment tenors risky since the credit account stays active over for a prolonged duration. Consequently, home loan interest rates generally go up with longer tenors. As a result, a borrower can try and renegotiate the loan terms with their financial institution. This can aid in reducing the interest rates with a shorter tenor of repayment in effect.
Home loans in India can have a tenor that goes up to 20 years. Consequently, with a huge number of EMI payments, a reduction in the amount can effectively decrease expenditure significantly. Subsequently, it is advisable to calculate and compare before opting for a loan scheme.
