I remember when I was looking for buying my dream home and when I found it then also remember how I effectively searched for better home loan deal. It was October 2007 when I signed my home loan agreement with Axis Bank Ltd. Yes for sure I had a bad experience with the agent of the bank but I bypassed him and deal directly with the bank and I am very much satisfied with the dealing direct with Axis Bank. I had taken a home loan of Rs.8, 50,000/- and my first EMI was started on January 2008. I am happy to write here that by this January 2010 I am closing my home loan debt with great happiness. I would like to share you with all the closing procedure of home loan which I will be following in my case.
It’s the known fact that to close your loan is as important step as what you follow when you went into market for smart borrowing. This is also one of the most important steps because till the time you do not do this; you will not get your flat ownership of the house you bought with the loan.
If you are in plan of foreclosing your loan, then inform the bank well in advance about the date of prepayment via letter or by email. Better you give this information to bank well before one month in advance. Advance intimation to bank will help them to calculate your exact outstanding interest, principal and the penalty if any that has to be paid. On intimation banks normally provides this details in a day or so about these liabilities. In this context I am very much satisfied with Axis Bank as the Customer Care Center always responds to your mails and deals with your query with 24 hours of time.
When you ask for the information do remember to take a letter from the bank regarding the exact amount that needs to be paid and the break-up of the amount. When you finally go and submit the prepayment cheque; do ask for the acknowledgement of the cheque through which you prepay the loan.
After you submit your last cheque you will get your documents back only after the cheque gets cleared. This usually takes 15 days. The document will be your Original Agreement Paper, Your own contribution receipts that you might have paid first to the builder and a sort of NOC that you have cleared all your dues as a part of home loan and the bank has no rights on the said property. After receiving the original agreement document you must check and compare it with the duplicate copies that you have kept with you as any discrepancy that comes up later would be difficult to trace. Ensure that every sheet is intact.
Lastly request for an acknowledgement of the cheque through which you pay the last EMI of your home loan. The bank will return your documents once the cheque gets cleared.
People generally buy house with a view that they will get benefit of tax exemption as Rs. 1,50,000/- interest and Rs. 1,00,000/- Principle amount will be taken as a Tax benefit. But to my knowledge it is not wise to go on paying the EMIs for the loan tenure and take the tax benefit advantage. You will end up in paying double money of what is your cost of home as interest only and in turn what you will save is hardly Rs. 45K or 50K of tax that you pay if not bought the loan? Let me give you my example which makes this clear. As I wrote in the beginning I have taken a home loan of Rs.8.5L for a tenure of 15 Years, if I opt for paying EMI regularly for my loan tenure I end up paying Rs.8,20,212 as Interest component only and my loan will end on June 2023 starting from Jan 2008. ROI taken as 10%. But as I did my part premiums which are totally free from any prepayment charges I am closing my loan on Jan 2010 by saving in interest component of Rs. 6,68,791/-. Isn’t this is great and wise?
You may also like to read on the following topics:
Looking for Home Loans? Know your Home Loan Better
Home Loan Documentation for Self Employed and Businessman
Reasons for Home Loan Rejection
Try to Avoid Borrowing Money
Tax Implications on Prepayment of Home Loan
Increase EMI or Loan Tenure
What is Loan Insurance
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| Author: Bhakti Savla 03 Nov 2009 | Member Level: Gold Points : 2 |
Hi Nilesh,
A very good informative post. I am sure plenty of people who are working in IT/Finance companies would associate with this post as the percentage of people taking home loans is maximum amongst such crowd. Your analysis is very good and it would go a long way in helping people taking home loans save a lot of money which goes waste as part of the interest. As explained by you, closing a home loan early or for that matter any loan, would always be beneficial. It is important that people learn this and try to decide for themselves about the best time to close a loan, provided they have the monetary backing for loan closure. The examples provided by you has made it even more clear about the actual advantage. Keep it going Sir!
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| Author: Madhura Tikekar 03 Nov 2009 | Member Level: Gold Points : 2 |
Hello,
This is true. Every person can repay housing loan if he is having adequate funds. People continue to serve the housing loan in assumption that they will get tax savings benefit on interest amount paid.
But they fail to recognise that to save tax on those funds, they are actually loosing on those funds totally.
Example you get tax benefit on interest amount of 150000 in a year. You save tax of say 30% (45000), but you loose total of Rs 150000. If you repay your housing loan. Rs 150000 would remain with you, though you would loose 45000 tax in a year, you can very well recover that in 2-3 years by investing in good plan.
Refer to below article for calculating whether you can repay your housing loan!
Whether to repay housing loan
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