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5 Golden Rules of Home Loan EMI

Home Loan EMI
Home Loan EMI

Home Loan EMI is an important part of borrower’s life till Home Loan is closed. Entire family think, eat, drink and sleep Home Loan EMI. I mean to say, all imp decisions of family revolve around this income “guzzler”. As home loan is long term commitment therefore we come across various situations and turning points where we don’t know how to handle Home Loan EMI. Any mishandling can have long term financial implications. In this post on “5 Golden Rules of Home Loan EMI”, we will discuss 5 such imp rules which should be guiding light to decide.

Rules for Home Loan EMI

1. Home Loan EMI as a % of Income: Recently you might have observed lot of publicity around new home loan products under the broad umbrella of Flexi EMI. It is not a new concept, you can voluntarily increase your EMI or decrease at the time of prepayment provided home loan tenure is not breached. Also under floating interest rate, you can prepay any time without any penalty. Common terms used for Flexi EMI are “Step Up” and “Step Down”. Only difference is that in such products, any increase / decrease is inbuilt with the product. Basically, these products are designed based on certain assumptions. For example, your income will increase 10% p.a. which may or may not be true. Life is uncertain and it will be more uncertain in coming years. The magnitude of uncertainty is increasing day by day. Recently one of my friends company was acquired by global social media giant. She was so happy to be part of global brand and threw the party for all friends…Next day she received pink slip and was informed that Social Media company would like to retain only a few employees of acquired company. Now she has home loan to manage and entire financial calculations went haywire.

The point i am trying to make is that under uncertain environment you cannot commit Flexi EMI. It’s a different matter if you are in the govt job. Assuming you and your wife opted for Step Up EMI option with assumption of 10% increase in income. Unfortunately, your wife has to leave the job to extend the family. It will upset household expenditure and also the probability of Home Loan EMI default is very high, in this case.

The golden rule to follow is that you should always pay 40% or 50% (depending on comfort level) of your monthly income as Home Loan EMI. Let say, your salary at the time of availing Home Loan was Rs 1 lakh and EMI was Rs 40k. This year, you received 12% increment therefore you should increase your EMI in the same proportion i.e. 12%. Revised EMI will be Rs 44,800 and Salary is Rs 1,12,000. Take another example, your salary is Rs 50,000 and EMI is Rs 20,000. You availed “Step Up” Flexi EMI. Your employer decided not to give any hike this year, but your EMI will increase by Rs 2,000. It will burden your financials. Follow the golden rule of Home Loan EMI should be 40% / 50% of Monthly Income. The control to increase the EMI should be in your hand.

2. Never Reduce EMI at the time of Prepayment: At the time of making prepayment, the strong urge is to reduce Home Loan EMI. Reason being entire family is tired of cutting down expenses, the common consensus in the family is to cut Home Loan EMI. You may cut down on prepayment and utilize for family activities but to reduce EMI is not a wise decision. Any reduction in EMI will increase your interest outflow thus increase the overall cost of property. Home Loan prepayment is normally done on receipt of Annual Performance Bonus or on maturity of an investment. Prepayment will reduce your Home Loan tenure. I mentioned in one of my post that you should try to close Home Loan before kids college education start.

3. Auto Debit Home Loan EMI: I always suggest my clients to opt for Auto Debit of Home Loan EMI. Normally banks prefer an account in the same bank though it is not mandatory or compulsory. You may opt for ECS mandate. Cheque payment is prone to a manual error which may result in payment default. Even in cases where banks failed to deposit cheques on time, it impacted CIBIL Score of the borrower. In few cases, there was signature mismatch or date was wrongly mentioned. To avoid all these issues, it is always advisable to opt for Auto Debit of Home Loan EMI. Preferably, you should link ECS with your salary or current account in which you receive your income. Default in auto debit is also very common as many people forget to transfer Home Loan EMI from salary account to Auto Debit Account.

4. Home Loan EMI Contingency Fund: As i always suggest to create 2 types of contingency funds i.e. one for household expenditure and second for Home Loan EMI. It is created for any unforeseen circumstances like job loss or loss of income due to health issues. This contingency fund should be 3 / 6 months EMI depending on the nature and stability of the job. In the case of single earning member, entire home loan amount should be covered by Online Term Insurance Plan. Contingency fund money should be kept separate and you should never utilize the same. You may invest this amount in Liquid funds, you can withdraw it within 1 – 2 days.

5. EMI Holiday: Not many people are aware of this concept. If you face any financial problem then you can discuss with your bank rather defaulting on Home Loan EMI. Depending on your payment record and if the bank is convinced that your problem is genuine then you may get 3 months EMI Holiday. Home Loan EMI payment default impacts your CIBIL score negatively therefore EMI holiday will come to your rescue. EMI Holiday is not guaranteed and is at the sole discretion of the bank. In some Home Loan products, it is bundled with the product wherein a borrower can avail once or twice during the Home Loan tenure. This facility should not be misused and remember that if you are not paying EMI then your interest is increasing. EMI Holiday should be used only during the emergency.

To summarize, nothing can replace proper financial planning. At the same time, no planning is perfect in this world. Life throws some unexpected situations. We can’t avoid or control, but it is advisable that we should be better prepared for such situations. By following golden rules of Home Loan EMI, we can manage and control our EMI in a better way.

Hope you liked the post!!!

Copyright © Nitin Bhatia. All Rights Reserved.

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nn1
nn1
9 years ago

You have rightly stressed on “right sizing” of EMI + contingency funds for EMI payment.
One additional observation. Even ECS can cause issues due to local bank holidays or adequate funds not present in the account (due to uncleared chqs deposited by you for EMI funding). The bank may try to debit your account in the morning for EMI and reject the ECS since your salary/neft etc may be credited say in the afternoon.
If the ECS is rejected, it can be a pain to pay the instalment.
It is a good idea to have the account funded one day in advance or open a account in the same bank only for EMI. The bank would in case a case mark a “lien” on the additional funds coming into the account and adjust it against the EMI, At least you do not have to run around or issue a chq and risk CIBIL issues.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  nn1

I agree..Tks for input.

Abha
Abha
9 years ago
Reply to  Nitin Bhatia

Hi Nitin, I am planning to take a flat in Jorhat, Assam. The value of flat is approx 34 lacs. Now I earn approx 40000 per month. So want your suggestion regarding loan amount and tenure of the loan. I am female single and 34 years old. The possession of the property will be in April 2017.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Abha

Prima facie, Calculations of SBI seems to be correct as Home Loan Eligibility depend on multiple factors. Please check my following post for more details.

https://www.nitinbhatia.in/home-loan/home-loan-eligibility/

Vijay
Vijay
7 years ago
Reply to  Nitin Bhatia

HI Nitin

I have a doubt

I have a loan of Rs 19,5 lakh at an interest rate ot 8.55%

Now if i have a plan of regular/periodic pre-payment of loan,, am i not better off reducing my EMI upon part payment every time as the time value of money by way of reduced EMI is a big benefit

Pl clarify

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Vijay

From financial perspective, the answer is NO. You also need to consider the impact on home loan tenure.

Nick
Nick
9 years ago
Reply to  nn1

Good point about maintaining balance. thanks.

Krishna Kishore
Krishna Kishore
9 years ago
Krishna Kishore
Krishna Kishore
9 years ago

Sir, my SBH HL emi is 13700 but am paying 20k every month from a last one yr. Partial pre payment at once or excess emi monthly. Which option is benificial to reduce the principal amount. If I want to increase my emi is it necessary to Inform the bank ? If so what is the procedure. Pl advice.

Nitin Bhatia
Nitin Bhatia
9 years ago

You can increase your EMI. You need to inform bank and request for an increase in EMI. There are no charges for this request.

rekha
rekha
9 years ago

Sir,I want to know the loan processing charges?….loan amount 60 lks..In HDFC bank or axis bank which one is better?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  rekha

Axis Bank Charge 1% of Home Loan amount as Processing fees and HDFC charge 0.5% of Home Loan amount. I will prefer Axis Bank. You can negotiate on Processing fees.

Deepak
Deepak
9 years ago

Hi Nitin,

Just wanted to know about DD’s which we need to take for registration and stamp duty. Is it something like I have to take DD from a particular bank or I can take it from any bank? I heard from a person that, i need to check with them from which bank I should take DD!! is this true?

Also, I had made an agreement before with the seller, now the bank ppl are asking me the agreement copy and telling me that the franking must be done for the agreement. Is this true? If yes then how much it should be done?

Thanks

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Deepak

Franking of sale agreement is must. Normally banks demand franking of 0.1% of Home Loan Amount. You may check with bank.

The DD should be in favor of local sub-registrar. You can get the DD’s from any bank of your choice. There is no restriction on same.

Deepak
Deepak
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin.

Bank insisted me to get my sale agreement franked for 0.2%. They said from this month it has been changed to 0.2 from 0.1%.

Current stamp duty & registration charges are – 5.6% stamp duty and 1% registration charges(correct me if i am wrong) during sale deed. So since I have already paid 0.2% stamp duty during sale agreement, should I deduct that from 5.6% and pay 5.4% or should I pay 5.6% only towards stamp duty?

And if I am going to Basavanagudi Sub Registrar, then DD should be in favour of Sub Registrar Basavanagudi? or is it something else?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Deepak

If the sale agreement is registered in Sub Registrar office then you can adjust 0.2% from 5.6% else you need to pay 5.6% at the time of property registration.

For DD, you need to check with local sub registrar office i.e. in whose favour DD can be issued.

Deepak
Deepak
9 years ago
Reply to  Nitin Bhatia

When my lawyer went to sub registrar for franking of 0.2% on sale agreement, he checked with them for adjusting this 0.2% during registration but they said during registration i need to pay 5.6% again towards stamp duty!!

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Deepak

That’s correct. There is difference between franking and registration of document. If you go for franking then you need to pay 5.6% at the time of registration. As i mentioned in my previous comment that In case, you register sale agreement in sub registrar office then you can adjust the stamp duty already paid in sale deed.

Nick
Nick
9 years ago

I have applied for a home loan to Axis Bank, and have a couple of questions about loan transfer and foreclosure:

* I have booked a flat in Noida Extn in a subvention scheme where possession will be offered in Sept 2016. At the time of possession, if I want to switch my home loan to another bank (say, SBI), what kind of charges do I need to pay to Axis? I read somewhere that I’ll have to pay EMIs for atleast 6 months before I switch my loan to another bank. Is this true? Are there

* I have applied a loan of Rs 40L for 15 years. At the end of 15 years, I’ll end up paying Rs 77L (principal and interest) to the bank. If I want to foreclose the loan at end of 10th year, do I need to pay entire 77L to the bank? How is the foreclosure amount calculated?

* If I want to sell the flat after 3 years (say 2018), what kind of charges do I need to pay to the bank and the builder? What kind of deal will work with the buyer? Can I transfer my loan to the buyer? If the buyer does not agree for the transfer, what are my options?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Nick

1. There are no prepayment charges for Floating Interest Home Loan transfer.
2. No, Foreclosure amount is only principal outstanding at the time of closure.
3. Depends on your agreement with the builder. Your loan will not be transferred but will be closed by buyer from own contribution or through his / her home loan.

Nick
Nick
9 years ago
Reply to  Nitin Bhatia

Thanks you, Nitin.

Shyama Prosad Banerjee
Shyama Prosad Banerjee
9 years ago

I want to get home lone from ICICI or HDFC
Which bank i choose?
I already applied for home lone in LICHFL but it was not sanctioned and i think i cancell my lone.And want to get it from icici or hdfc.

Nitin Bhatia
Nitin Bhatia
9 years ago

In my opinion ICICI bank.

Shyama
Shyama
9 years ago
Reply to  Nitin Bhatia

Thank you

G.Upadhyay
G.Upadhyay
9 years ago

Sir, we had taken home loan from SBI for a period of 15 years tenure.Nine years have already passed. Since loan was on floating basis,we requested them to decrease the interest to 9.60% which is prevailing today. They were charging 12.60% . Now they agreed to switch over to 9.60% with switch over charges. Suudenly they are now also demanding some arrears of few thousands rupees. The bank was regularly debiting EMI from our account and even when interest went up they were taking their interest. How come they can ask for more money,is it not fleecing the customer. I wrote to Bank and also their RACPC branch but they are not replying. Your kind suggestion please.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  G.Upadhyay

Please ask bank to provide Amortization schedule and Home Loan statement. It will clarify your doubts.

Yamuna R
Yamuna R
8 years ago

Sir,

I would like to request to know the following based on my inputs below.

I have taken a Home Loan of 30 Lakhs in LIC Housing for 20 years and paying EMI every month. Currently the remaining balance I do have is 28.5 Lakhs with 6 years completed now.

I would like to know the benefits of EMI change (increase/decrease) and the applicable charges from the LIC Housing for this change.

Option 1 : If I would repay 2 Lakhs as part payment of the principal and request the LIC Housing to reduce the EMI what will be applicable charges collected by them and how much the EMI will be reduced with the same tenure

Option 2 : If I would repay 4 Lakhs as part payment of the principal and request the LIC Housing to reduce the EMI what will be applicable charges collected by them and how much the EMI will be reduced with the same tenure

Thanks in advance.
Option 3 : If I would repay 2 Lakhs (or 4 Lakhs) as part payment of the principal and request the LIC HousingNOT to change the EMI then what benefits will be applicable apart from reducing the tenure at later years(done automatically)

Please guide me with your expertise team to plan to get the correct benefits as I am trying to reduce the EMI as it exceeds the IT exemption limits.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Yamuna R

It required detailed calculation which is available on chargeable basis.

vinoth b
vinoth b
8 years ago

I am planning to take a home loan for an under construction property which is nearing completion in a year from SBI with maxgain facility . assuming that my sanctioned amount is 50Lacs , and based on CLP 35Lacs would be disbursed by SBI on day 1 and i opt for full EMI from day 1 as tranche EMI option isnt available with SBI as per the SBI executive . assuming my full EMI would be around 50k/ month approx

1, my EMI of 50k+ will have interest only for the disbursed amount (35lacs) and rest of the money gets added to principal. is this right ?

2,As the demand from builder increases based on CLP if i decide to pay the remaining money using my own funds instead of requesting future disbursements from the bank and finally end up taking only 35lacs loan only instead of sanctioned 50lacs will my full EMI per month get reduced to 35k+ or will i be continuing with 50k+ as i was told that EMI would be constant in max gain and it cannot be changed .

3, are you aware of any tranche EMI option available in SBI with MAX gain as few executives arent fully aware of the features of their own bank loans?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  vinoth b

1. Yes but you should calculate & verify the same as in some cases i observed that interest is charged for FULL Loan value though disbursed amount is less as it is in your case.
2. The EMI value has no direct correlation with Loan amount. If you don’t avail balance 15 lac then your home loan tenure will reduce. It seems what bank executive is trying to convey is that your home loan tenure cannot exceed X no of years therefore depending on loan value and Home Loan tenure, EMI can be adjusted to lower value in future. Though it is subjective.
3. As per my knowledge SBI does not offer tranche EMI option under maxgain home loan account. Secondly, it is purely at the discretion of the bank.

vinoth b
vinoth b
8 years ago
Reply to  Nitin Bhatia

thanks Nitin,
regarding 2nd query : does this mean that irrespective of whatever amount i finally decide to avail from the bank (35lacs out of 50 lacs sanctioned here) , my monthly EMI would be based only on the sanctioned loan amount only (50lacs here in example with a corresponding monthly EMI of 50k) and since i didnt opt for remaining 15 lacs of the sanctioned amount i would end up paying the same EMI ( 50K ) for a lesser tenure considering the fact that it is only 35 lacs now ? is my understanding right ?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  vinoth b

Your understanding is correct. Depending on your eligibility and if you request the bank, they may increase home loan tenure and reduce EMI but it is subjective and at the discretion of the bank. Financially, High EMI and short tenure is beneficial for the borrower.

vinoth b
vinoth b
8 years ago
Reply to  Nitin Bhatia

Hi Nitin,

In conjunction to the previous query , My sanctioned loan amount is 50lacs now , and i have planned to take only 45lacs considering my current financial situation( i have additional 5 lacs in hand) . But the bank manager suggests that since i am going with maxgain , i can avail the complete 50lacs loan instead of 45 lacs although i have 5 lacs in hand . He suggests me to park that surplus 5lacs in maxgain at the beginning of loan tenure itself which would still get me the same interest which i would have paid if i had availed a 45 lacs loan.

Can you please suggest is it good to avail lesser loan amount (making use of the money in hand) than the sanctioned loan amount ?
or
to take all the sanctioned loan amount of 50lacs and just park the 5 lacs in the beginning itself in Maxgain?.

as per my understanding Pros and Cons of manager suggested option is below

Pros : I can anytime get that 5 lacs back when i need it which is not possible if i had availed 45 lacs( instead of 50lacs) and already paid that 5 lacs in hand to builder.

Cons : My EMI would be 50k+ for 50lacs against 45k+ if i had taken only 45lacs loan.

need your opinion here…..

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  vinoth b

If your intent is to reduce EMI then you can prepay else you can keep the money in maxgain account.

vinoth b
vinoth b
8 years ago
Reply to  Nitin Bhatia

As this call needs to be taken at the beginning of the loan term , would like to know is there any other things which i am missing here?.. because the generic recommendation which comes from everyone is to borrow as much less amount as you can for home loan… but with maxgain option wondering if this statement still holds true in the scenario above which i am facing today

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  vinoth b

It is subjective. I am not sure whether you have provisioned contingency fund or not. It also depend on risk profile of the borrower. As i understand you may not have contingency fund therefore it is advisable to keep money in maxgain account if EMI amount is not a concern.

Nitin Bhatia
Nitin Bhatia
8 years ago

Overdraft limit is equivalent to the amount of the home loan disbursed. It seems property is under construction and you are paying Pre-EMI Interest. The FULL EMI will start when you will receive the possession/register the property in your name.

mahendra
mahendra
8 years ago

hi, want to avail EMI HOLIDAYS , as such had planed to work abroad , and will be getting fixed salary to my N.R.I account after 3 months , wish to avail on the bases so that can repay my EMI . need your guidance as such I am having a home loan from H.D.F.C bank , how to approach for the further to bank?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  mahendra

You may discuss with the manager of the HDFC Ltd branch from where you availed home loan. Based on your past payment record, they may offer you EMI holiday. It is at their sole discretion.

Pradeep Shenoy
Pradeep Shenoy
8 years ago

great piece of advice Nitin. really helps those who are looking for homeloan,

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Pradeep Shenoy

Thanks for liking the post.

Santhosh S
Santhosh S
8 years ago

Hi Nitin,

My monthly net take home salary is 135000 and I have already have a house for which i am paying an EMI of 20K. I am planning to buy an under construction apartment purely for investment purposes which will be finished by end of 2018. This costs 45 lakhs and I am taking a housing loan of 40 lakhs. I dont have a personal loan or car loan, but have 2 lakhs of gold loan taken at 4% interest. I have various investment products for which i am paying out around (NPS – 5K, Sukanya Samridi – 4K, ELSS – 2K). All the other household expenses would come to about 30K. Considering this situation, would it be a wise decision to go for this new housing loan? I have heard the thumb rule that your loans should not exceed 50% of your income, but i just wanted to confirm this. Please suggest.

Regards,
Santhosh

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Santhosh S

If you are buying a property for investment by availing home loan then you should check following post

https://www.nitinbhatia.in/personal-finance/should-i-invest-or-prepay-loan/

kc
kc
8 years ago

Hi Nitin,
I am planning to buy an under-construction(expected Dec 2018) flat in Rajarhat,Kolkata. Currently booking is open for the project.The total cost including car parking with 4.5% tax is Rs.47,22,747.Grand Total excluding registration is Rs.50,84,841. I am already having one personal loan with EMI of Rs.8650 and a car loan with EMI 9600.My personal loan will be over by May 2017 and car loan by Feb 2019. My take home salary is Rs.75,800 per month.My spouse is also working with a monthly take home salary of 24,900 with no existing loans. So, my questions are:

1.Will I and my spouse be eligible for a loan of Rs.50,84,841?
2.Banks usually finance upto 80% of the cost of the property.Assuming that only 40 Lakhs being sanctioned by the bank, how do I manage the remaining 11 Lakhs?
3.As per T&C, once I pay the initial booking amount, within 30 days I need to furnish the agreement by paying 20% .Will my loan be disbursed at this stage?
4. As I am currently staying in Govt. accommodation with monthly rent of Rs.4000, what type of EMI would be best for me.(whether a trench EMI be good)
5.Does HDFC bank offer trench EMI?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  kc

1. It depends on risk assessment of a bank. Prima facie i don’t think so that bank will approve 50L.
2. From own sources
3. No. First you need to pool your contribution i.e. 20% then bank will disburse the home loan.
4. It depends on your financial calculation. You can opt for max EMI you can afford.
5. Yes

ABD
ABD
8 years ago

Hi..is it necessary to avail ECS facility for home loan from icici bank? I am self employed and so there is no fix date when my account gets credited by my debtors. So many times it happens that my cheque bounces. I went to icici branch to cancel by ECS facility but they told that it is mandatory to avail. So i want to know is it mandatory to avail ECS or auto debit facility??

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  ABD

The date of EMI is fixed. You can avail ECS or submit PDC’s but it does not make difference. Therefore, you need to ensure on the date of EMI you should have sufficient funds in your account.

Jitesh
Jitesh
7 years ago

Can bank force me to opt for ecs clearance of Emi option . As I am comfortable in pdc option . Pl give me some id where I can take up the matter .

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Jitesh

Though it depends on banks policy. You may escalate to RBI Banking ombudsman.

Umesh Bokade
Umesh Bokade
7 years ago

I nitin, me and my wife are getting salary around 50k each. We are paying 40k home loan emi. Now we r thinking to sell the flat bcoz my wife want to leave the job to extend the family. I have some funds from i can pay emi of next year. But i m confused what to do. Should I wait for increase flat rate or sell it now?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Umesh Bokade

Before taking any decision, you may discuss with your home loan provider to decrease the EMI and increase Home Loan tenure. You can explain why you would like to decrease EMI. Bank may agree.

Shrinivas Shastry
Shrinivas Shastry
7 years ago

I have purchased house through builder and paid 99% amount and bank deduct my EMI three months, but builder has not handover my home. This situation I stop my EMI from bank????? What rule in home loan ??? kindly suggest??

Nitin Bhatia
Nitin Bhatia
7 years ago

You cannot punish bank because of builder’s fault. If you stop EMI, bank will declare the property as NPA and auction the same. Bank does not guarantee/immunity/safety to buyer in case of dispute between the buyer and the builder. In my opinion you should stop EMI.

Raghava Ravuri
Raghava Ravuri
7 years ago

Hi Nitin,

I have a doubt regarding ECS facility..

I have a salary account with HDFC bank and My home loan is with SBI.
However, it was understood that ECS operates on 7th and 17th of every month.
Interest on Home Loan will be calculated and made as due on last day of each month.
If I opt for ECS, will there be any additional interest charged for these 7 days period as opting for ECS results in late payment???

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Raghava Ravuri

As i understand, you can decide the date of ECS there are NO FIXED Dates for ECS. Only issue is if there is a holiday on date of ECS. In such cases, bank execute ECS on penultimate day.

Biswabrata Bhakta
Biswabrata Bhakta
7 years ago

Hi Nitin,

First of all thank you for the good work of sharing knowledge. I have the concern/dilemma between choosing between pre-emi and full-emi as mentioned below:
I’m taking home loan(sbi maxgain) for an under construction property (for self-use from a top reputed/tier 1 builder) which would be delivered in another ~2 years from now. The disbursement demand from builder is time-linked and not construction linked. So any delay in delivery probably doesn’t impact disbursement.
I’m going for 10:80:10 scheme where the last 10% i need to do parallel funding along with each disbursement from bank.
1) Full EMI – As i understand, if i go for full emi, irrespective of disbursed amount by bank, i’ll start paying interest on the full loan amount, and my emi will repay small portion of the principal(at least starting ~5 years); with full emi and parallel funding, I can survive but can’t save anymore to overdraft in the initial years (at least till parallel funding ends);
2) Pre-EMI – I will pay only interest on the disbursed amount; so pre-emi amount is much lower than full, but there is no principal repayment; But with this low emi, I can save the differential amount and deposit the surplus as overdraft to the maxgain; thus the interest on the outstanding principal can be reduced; And at the end of parallel funding when I switch to full-emi and the total interest will be lower based on the outstanding amount because I’ve over-drafted during the pre-emi stage.

Now everywhere I learn that full emi is always better than pre-emi, but with the above mentioned plan, please advice which would be profitable for me to opt for? I’ve started with pre-emi as bank said I can any moment switch to full-emi from pre-emi but not vice-varsa.

Thanks,
Biswa

Nitin Bhatia
Nitin Bhatia
7 years ago

I will prefer plan 2 purely from financial perspective.

Biswabrata Bhakta
Biswabrata Bhakta
7 years ago
Reply to  Nitin Bhatia

Thank you for the suggestion Nitin. Much appreciated.

Daredevil
Daredevil
7 years ago

Hi Nitin,

I was in delimma what to do as people say house loan interests are going down and I can also save tax on the interests for self occupied home. I am currently planning to prepay home loan but it seems my job future is not so stable. So, atleast in future I might reduce my emi to minimum amount and maximum tenure with least possible EMI in case of job loss. Do you think it is wise to close the home loan without thinking all these tax saving etc( I fall in 30% bracket). I get advice that equity etc will give more return in long term, but I cannot think all these if I don’t have job what tax I can save and I cannot take out equity investment if their return is negative. Home loan seems to me as a outflow irrespective of anything. Please let me know, your views in this regard.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Daredevil

Considering the situation, you should prepay and close home loan asap. The long term returns of equity investment is 10% to 12% but timing is important therefore i will prefer to prepay home loan rather investment in equity.

Daredevil
Daredevil
7 years ago
Reply to  Nitin Bhatia

Thanks Nitin for giving your viewpoint on this.

Suman
Suman
7 years ago

Dear Nitin,

I am borrowing home loan from SBI. My monthly EMI is 18772. In a financial year (1-04-2015 to 31-03-2016) I paid in total 225264. But referring to the Loan certificate for that financial year, the total amount paid was 211674, which is lower. What is the reason?
Please let me know your kind view on this.

Suman
Suman
7 years ago
Reply to  Suman

Dear Nitin,

I got the Math. Thanks Anyway :)

Paramita
Paramita
7 years ago

Dear Nitin,

For my home loan 9SBI), planning to toggle from base rate to MCLR. The conversion charge is 11500 INR. Is there any TAX benefit on this 11500 ? Can I add it with the home loan interest?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Paramita

The answer is subjective but in my opinion you cannot claim tax benefit on conversion fee.

PRAVEEN
PRAVEEN
7 years ago

Dear Nitin,
I have taken a home loan for Rs. 22 lacs from LICHFL in November, 2013 at a ROI of 10.25% (2 years fixed). The current outstanding is Rs. 19.65 and the ROI is around 9.6%. I would like to transfer my loan balance to any other bank who can offer the lowest ROI.
Now SBI and Bank of Baroda are offering 8.65% and 8.35% ROI respectively under 1 year MCLR.
SBI is charging 0.5% of the loan amount as mortgage or stamp duty and Rs. 5600 as legal and evaluation charges. There is no processing fee.
Bank of Baroda is charging 0.5% of the loan amount as processing fee on top of all above.
I am in a dilemma whether to transfer my balance loan amount to SBI / BOB at this moment.
Please advise me.
If it is a wise decision, to which bank I can transfer my balance loan amount?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  PRAVEEN

Before any decision you may approach LICHFL to reduce your home loan interest rate and wait for their response.

Missuniverse db
Missuniverse db
7 years ago

Issue is there is no proper system or there require reforms … people don’t know what to do they r ignorant as well as innocent dear @nitinbhatia121:disqus Nitin Bhatia ..so we feel it is Colonial Invader law imposed forced by Congress on the population..

http://economictimes.indiat

Maloy
Maloy
7 years ago

I have a flat (self occupied) under home loan. In this financial year, during Sept-Oct 2016, I put the flat on maintenance (some civil work in kitchen and bathroom and some wall repairing). That time, I was in rent on a Studio apartment and the bill of both maintenance work and rent are with me. Can I get Tax benefits on those?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Maloy

You can claim HRA but cannot claim any tax deduction on maintenance work.

Skumar
Skumar
7 years ago

Sir, I am planing to get home loan from UBI. The cost of the property is 45 lakh. My eligiblity for home loan is 35 lakh. I wish to take about 25 lakh for 20 years as loan, and will arrange about 23 lakh from my end. The bank personal is suggesting to take maximum loan for 30 years. I want to know that whether it will be good to take maximum loan or minimum loan and for what period. I am a govt salaried person. plz make it clear. S. Kumar

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Skumar
Haritha G
Haritha G
7 years ago

Sir, One suggestion please. We have taken homeloan of “35lakhs” with 9.9% ROI and 20yrs tenure ,on April 2015 (through LIC HFL). EMI is “33635”. We could repay the Principle amount last year around 4Lakh+ as our (Me n my spouse) salaries got increased.

Now total tenure reduced to 12yrs. and we changed ROI to 9%. We have a confusion that whether we should increase our EMI to 40K or Should we keep repaying amount as much as possible? or Both(EMI increase+ possible loan repayment)? Which one is best option? please suggest.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Haritha G

You can increase EMI. You can utilize your annual bonus to prepay home loan.

Dev Misra
Dev Misra
7 years ago

Hello sir,

i have applied for reduction of interest rate from 11 to 9 in lichfl. as i looked into LIC website it is showing ROI 9 % but EMI rate as it is as before, why it is same as before even though i did not get any information from LIC that tenure is reduced or EMI.

Please suggest on this.

Thanks,
M Dev

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Dev Misra

You may ask for amortization schedule from LICHFL to check the same.

SHAILESH BHARDWAJ
SHAILESH BHARDWAJ
7 years ago

Dear Nitin,
Is their any limit on increasing EMI at LICHFL.As informed from LICHFL agent, an EMI cannot be increased by >5000,
Request your point on this.
Best Regards
Shailesh

Nitin Bhatia
Nitin Bhatia
7 years ago

There is NO such limit. You ask him where it is written that EMI cannot be increased beyond Rs 5000.

shipra saha
shipra saha
7 years ago

I just have taken a homeloan.. need to pay 21000 EMI for 15 years.. I can pay more per month But I have no idea how can I increase my EMI so that I can complete my loan early with less rate of interest

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  shipra saha

You can approach the bank or HFC and submit request to increase EMI as per your convenience. It will reduce your home loan tenure. But remember that once the EMI is reduced then it cannot be reduced in future.

SANGRAM KUMAR DAS
SANGRAM KUMAR DAS
7 years ago

Dear Sir,

I have taken a home loan on last AUG 2016 from SBI. I want to prepay some amount against my home loan. As its not been a year, what is the procedure I have to follow? and how it will affect to my home loan amount? Please advice.

Thanks and Regards,
Sangram

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