How much should I borrow for a house? People have often asked us this question regarding the best home loan. Generally, you should not borrow above 50% of your take home salary. Other monthly payments such as insurance premium must be deducted while calculating repayment capacity. While taking the decision regarding your best home loan, you also need to consider the tax benefits from the home loan and, the rate of interest on the home loan while deciding on how much to borrow.
What is the Best Home Loan? Home loan of Rs 16 lakh @10.25% for 15 years is the best home loan to optimize the tax benefits for a person. EMI comes to Rs. 17,290 X 12 = Rs. 2,07,480. Out of this, interest payable during the financial year is Rs. 1,60,025 and principal repayment is Rs. 47,455. You can use the home loan EMI chart for calculating the plan that suits you.In case of a joint home loan, the limit of 16 lakh will be doubled accordingly. The loan amount also depends on the value of the house you are buying as the banks typically allow only up to 85% of the total cost. The interest on the home loan is deductible from your salary income, provided that you have obtained possession of the house. If the house is under construction, then interest will be accumulated till you get its possession. Thereafter, deduction will be allowed in five equal installments for next five years, along with interest of that financial year. The total interest deductible is limited to 1.5 lakhs for a self occupied house. Spotting the Best Home Loan
The interest rate of home loan has been on the rise. However, even today the effective interest rates are attractive i.e., home loan interest at 10.25% effectively gets reduced to 7% assuming you are in 30% tax bracket. Therefore, you should take a home loan if you have the opportunity and risk capacity to invest in equities and mutual fund, as the average return of equities is higher than 7-8% effective interest rate on the best home loan.You can prepay home loan if the interest is being charged @12% or more, instead of keeping money in fixed deposits, bonds etc. (@9%).
Another way of saving money is to take a home loan with an overdraft facility so that you can save interest by depositing additional funds in the home loan account. Banks like SBI, HDFC, and HSBC offer these loans as home saver, smart home etc. You can claim full interest in case of let out property, even if it exceeds Rs 1.5 lakhs.
The Best Home Loan: Now is the Time
Postponing the purchase may not be a good idea! If you think you can postpone purchasing a house till the interest rates fall to 9%, you might be mistaken. The interest rate drop from 10.25% to 9% can help you save about Rs. 20,000 p.a. on a Rs. 16 Lakh loan. But, with the property prices rising at a whopping rate of 18% p.a., you might have to shell out an extra Rs. 6 Lakh to acquire that property. So, don’t wait and buy now!