Ease Your Home Loan Burden

Ease Your Home Loan Burden

Ease Your Home Loan Burden

Pay EMI for the entire sum, even if it is disbursed in tranches

Shweta M is finding it difficult to understand the bank manager's logic. "He wants me to start paying the equated monthly installment (EMI) on the entire home loan of Rs 30 lakhs, though he is going to disburse only 30 per cent as the first installment for the under-construction property," she says. And, that too, when she will not get any tax benefit on the principal payment.

The bank manager explains, "Paying EMI on the entire loan will reduce the overall burden. Shweta will reduce her burden by almost 10 per cent by the time she gets possession of the flat."

He wants her to ignore the loss of tax benefit on principal payment under Section 80C of the Income Tax Act, as the limit is only Rs 1 lakh. "Her Employee Provident Fund and life insurance premium exhaust 80 per cent of the limit. For a benefit of a mere Rs 20,000, she should not defer paying the home loan," he argues.

Twenty eight-year-old Shweta has bought an under-construction house and will get its possession after three years. In such cases, banks stagger the payment according to the stage of construction. For instance, of the total cost of Rs 30 lakhs, the bank will release 30-35 per cent in the first stage. And, depending on the stage of construction, the rest of the amount will be disbursed.

Of the approved Rs 25 lakhs, the bank will release the money in tranches, at different stages of construction. First, the bank-appointed surveyor inspects the construction site. The payment is made according to the surveyor's assessment of the project. During the construction phase, the bank may release small amounts (say Rs 5 lakhs in the first year, Rs 10 lakhs in the second year and so on) and pay the remaining on possession of the house.

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