Rising EMIs? What should you do?

Your monthly EMI on your home loan has suddenly shot up and you find it difficult to manage the installment amount. You had borrowed money at 8 per cent floating rate interest. Now, the same loan is priced at 12.25 per cent.

Do you know how to manage such a situation? Can you sue your lender in such a case?

Do you want to switch from your present home loan lender to some other bank offering you loan at a lower rate? What will you be charged if you do so?

What are the advantages of going for a long-term home loan tenure as compared to a short-term tenure? Which one should you ideally opt for? What are the charges levied when you prepay your home loan?

Part I -- Will home loans be cheaper?

shesha asked, Hi Harsh, nice to see you here again. I have taken a home loan on my father's name and I am a co-borrower. Please let me know if I can avial Tax benefit and how? My father is not a tax payee.

Harsh Roongta answers, If you are not a co-owner in the property, then you cannot get any tax benefit just because you are a co-borrower.

divakar asked, Dear Harsha, a very good afternoon. I have a query regarding transfering hoam loan from one bank to another. Can you tell what conditions apply for doing the same? Is there any charge, which I have to pay to origin bank or destination bank?

Harsh Roongta answers, Typically you should have maintained a good track record of payment on your existing loans. Also, you will need a letter from the existing lender outlining the title documents held by them for the loan. The existing lender may charge a pre-payment charge and the new lender may charge a service charge.

If the interest rate is at least 0.50 per cent cheaper, this may still be a better option despite the two charges. 

sakthi asked, Dear Harsh, my home loan was approved about 15 days back and the disbursement will happen by next week. Will the RBI new credit policy effect my housing loan limit? And please clarify about the risk weightage?

Harsh Roongta answers, Please see the transcript of the chat. This has already been answered.

thiru asked, Sir , I stay in a rented house in Chennai , but want to build a house in my native place by taking a home loan and leave it for rent. In this case can I claim HRA exemption and exemption for interest paid on home loan?

Harsh Roongta answers, There is a misconception that tax benefits on home loan repayments and HRA exemption cannot be claimed together. See the detailed answer on this link: http://www.apnaloan.com/taxtips/home-loan-india/taxdeductionbenefitsforhlhra.html.

admin asked, Dear Harsh, I am planning to take a home loan, so please let me know which is better long term loan (15+ years) or short term loan (less than 10years)?

Harsh Roongta answers, The best bet would be to take a home loan with as long a tenure as possible without any charges for partial pre-payment. This way you get better loan eligibility without undue stress on your monthly cash flow. At the same time, you can pre-pay the loan when liquidity permits you to do so.

mandrek asked, Hi harsh, I have a car loan with ICICI Bank. Instead of paying in installments, I now want to pay the entire amount at one shot. Can you tell me what will be the prepayment charges? Many thanks in advance.

Harsh Roongta answers, You will have to check your loan agreement with them. Typically, prepayment charges for car loans is around 3-4 per cent of the amount pre-paid.

risaf asked,  Hi Harsh , If it would be wise to switch on to fixed from floating or just stick on with floating?

Harsh Roongta answers, Already answered. See the chat transcript.

Yogesh_ApnaLoan asked, Hi Harsh, Should I pre-pay around Rs 3 lakhs after withdrawing all my saving such as PF, leave encashments and FD's etc, which are giving less returns than the home loan interest I am paying?

Harsh Roongta answers, Whilst you can use your other savings, please be careful with PF as it is meant to be your retirement savings.

gpn asked, Hello sir, 2 years ago I have taken a loan fixed rate of interest @ 8.75 per cent from Allahabad Bank. Now you know all banks have increased their home loan rates. Will it affect my existing loan rate also? Please clarify? Thanks.

Harsh Roongta answers, Depends on your loan agreement with the bank. Read it to find out whether the bank has the power to change the 'fixed' rate charged to you.

jagraj_2010 asked, Dear Harsh, I took home loan at 7.25 per cent and now from next month they are increasing to 11.25 per cent. Now I have joined a good company, which has a tie-up with the same bank and same bank is offering my company employees home loan at 10.50 per cent. Now in order for me to change it to 10.50 per cent they are charging a small amount to switch it. Is it a good advice looking at long term that I switch to this? How FRR/PLR works? What point should I take into consideration?

Harsh Roongta answers, A small fee to get a reduction of 0.75 per cent pa in interest rate will always make sense. So go ahead.

prav0080 asked, Hi Harsha, I took a home loan at 7.75 per cent fixed some 2 years ago and now I have some money which I want to invest. With the current interest rates, do you suggest me to prepay part of this home loan or invest in something(like FD) which is giving around 10 per cent interest?

Harsh Roongta answers, If your home loan is genuinely fixed, then of course you must invest the money in any manner that you think is suitable.

JitenRatwani asked, I took a loan of Rs 10 lakhs for a home in Bandra. Interest rates then were 8 per cent. Now I'm paying 12.25 per cent. I'm in a big soup. My installment has gone up so much that we have to reduce expenses everywhere just to pay the installment.

My wife is doing two jobs for this. I'm behind on my installments by three months. I'm trying to raise funds by whatever way I can to repay this loan. I want to know, is there any legal recourse I have? Is there any way I can force my bank to reduce the interest rate? Please help. I've even postponed going for a child because we can't afford it. PLEASE ADVISE.

Harsh Roongta answers, I symathise with your plight. Very few people keep a reserve while deciding to take a home loan with the result that their budgets go for a toss if rates increase. Perhaps you can raise some long-term funds through borrowings from friendly sources or against some securities such as shares, NSCs, life insurance policies, jewellery, etc. Best of luck.

Lancelot asked, Hi Harsh, I have a very fundamental question, which might even sound silly, Why does a bank need to revise loans especially when they have already procured the funds to pay for your loan? Does it also have to pay for the funds with a floating rate?

Harsh Roongta answers, Absolutely, you are correct.

Lakshminarayanan asked, I am a research student; I will get my PHD degree with in 5 months. After that I will go to USA for my post doctorate, from there I want to apply for home loan. What can I do for that? How I can proceed for that?

Harsh Roongta answers, It will be difficult for you to get a home loan based on the stipend you get paid while doing your PHD.

Harsh Roongta says, Ok folks. My hands have just given way. Please do read the entire chat transcript as most questions have already been answered even if your own question may not have been answered. You can also login to www.apnaloan.com for any other queries that you may have. Goodbye and see you next fortnight.

Part I -- Will home loans be cheaper?