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Old 13th June 2017, 13:49   #526
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Default Re: Help with a home loan!

Here's the update, met with the SBI Branch Manager on their off today (Saturday) and we spent an hour sorting out the nuances around an SBI loan.

Firstly, their interest principal ratio is one of the best in the market which is why a bank might give you a loan at a better interest rate but over a period of 10-15 years you'd be at loss for sure. Private banks will also change your payment schedule given the tiniest of excuse and while you think you have an acceptable or even better rate of interest they are actually resetting your interest principal ratio. Indiabulls is the worst as per that guy. I have an office colleague who has a loan from Indiabulls and I told him to transfer his loan at the earliest possible.

Max Gain, the OD account, calls for an additional 0.1% increase in interest rate however its advantage is that the interest calculation is going to change as soon as you park some money in it.

Home loan insurance is NOT mandatory, if your SBI branch is pushing you for it then they are just milking you.

General Insurance IS mandatory however they allow you to get it from wherever you want.

I'm in the process of collecting the documents for the loan, will keep you all posted on the result.
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Old 13th June 2017, 14:13   #527
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Default Re: Help with a home loan!

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Max Gain, the OD account, calls for an additional 0.1% increase in interest rate however its advantage is that the interest calculation is going to change as soon as you park some money in it.
Not sure if you know this already. The Interest Saved by parking money in the OD account gets deducted from your FY Interest Calculations for Tax Benefits.

Meaning, if in a normal loan you are paying Rs. 1,00,000 as interest, you can claim the whole amount for Tax Relief under Home Loan Interest.

With OD Account, things are different. If you decided to park certain amount in the OD account, the interest will be credited to your account at the end of every month. At the end of the FY, the total Interest you can claim for Tax Relief would be Rs. 1,00,000 (Say) minus the interest earned by parking your funds.

So, if you are planning to take the full Rs. 2,00,000 Tax Relief from Home Loan Interest then you might want to take a look at this again.
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Old 13th June 2017, 14:18   #528
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So, if you are planning to take the full Rs. 2,00,000 Tax Relief from Home Loan Interest then you might want to take a look at this again.
Thanks for this!

However, with a loan of ~70-75 lakhs I don't think I'd fall short in tax exemption.

Question though, if one is in the 30% tax bracket then what kind of loan amount is advisable to carry forward. I wish to prepay the loan from the first year itself but want to keep a small amount so that I can get some tax savings, what's the right calculation when considering something like this.
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Old 13th June 2017, 14:32   #529
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Default Re: Help with a home loan!

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Originally Posted by fine69 View Post
Thanks for this!

However, with a loan of ~70-75 lakhs I don't think I'd fall short in tax exemption.

Question though, if one is in the 30% tax bracket then what kind of loan amount is advisable to carry forward. I wish to prepay the loan from the first year itself but want to keep a small amount so that I can get some tax savings, what's the right calculation when considering something like this.
If you alone are going to Claim Tax Relief, at least for the initial 5-6 Years even with 2-3 Lakhs of prepayment every year, it wont make any difference to the amount of Tax Relief you claim, unless Government decides to increase the Tax Relief Deductions.
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Old 13th June 2017, 15:09   #530
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Default Re: Help with a home loan!

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Originally Posted by fine69 View Post
Thanks for this!

However, with a loan of ~70-75 lakhs I don't think I'd fall short in tax exemption.

Question though, if one is in the 30% tax bracket then what kind of loan amount is advisable to carry forward. I wish to prepay the loan from the first year itself but want to keep a small amount so that I can get some tax savings, what's the right calculation when considering something like this.
Fine69, the way to use maxgain, especially if you have surplus funds, is to keep that much funds in maxgain amount which make you incur interest expense of 2,00,000 per year. This is if only one person is repaying and is in 30% bracket. If it is a joint loan and the second person too falls in 30% bracket then you have to reduce the surplus funds in maxgain so that the interest expense is about 4,00,000.

For e.g. for an interest rate of 9.25%, if you keep about 23 lakhs outstanding, then the interest for one full year comes to about 2 lakhs. So if someone takes a loan of 30 lakhs with maxgain, he should park 7 lakhs at max making the outstanding amount to 23 lakhs so that he is able to avail full benefit of 2 lakh exemption.
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Old 13th June 2017, 15:22   #531
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For e.g. for an interest rate of 9.25%, if you keep about 23 lakhs outstanding, then the interest for one full year comes to about 2 lakhs. So if someone takes a loan of 30 lakhs with maxgain, he should park 7 lakhs at max making the outstanding amount to 23 lakhs so that he is able to avail full benefit of 2 lakh exemption.
Precisely what I was looking for, many thanks!

Yes I'm going to apply with my wife as co-applicant so will keep this calculation in mind.
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Old 13th June 2017, 21:21   #532
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Default Re: Help with a home loan!

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Originally Posted by tejas08 View Post
Not sure if you know this already. The Interest Saved by parking money in the OD account gets deducted from your FY Interest Calculations for Tax Benefits.

With OD Account, things are different. If you decided to park certain amount in the OD account, the interest will be credited to your account at the end of every month.
In case of Standard Chartered (product similar to maxgain) the OD account is a current account and accrues no interest. So the interest saved from home loan is entirely your gain. Didn't know that SBI maxgain worked differently.

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, the way to use maxgain, especially if you have surplus funds, is to keep that much funds in maxgain amount which make you incur interest expense of 2,00,000 per year.
Why? If you have surplus funds, doesn't it make sense to reduce the interest outflow by parking the maximum amount in the OD account rather than trying to hit the 2 lakhs rebate?

Consider this example:-
Loan amount: 30 lakhs at 10%
Annual interest: 3 lakhs
Annual salary: 20 lakhs
No other tax savings except home loan

Case 1
Amount in OD account: 10 lakhs
Interest paid: 2 lakhs
Taxable income: 18 lakhs
Tax paid: 540000
Amount after tax: 1260000

Case 2
Amount in OD account: 20 lakhs
Interest paid: 1 lakhs
Taxable income: 19 lakhs
Tax paid: 570000
Amount after tax: 1330000

The example is overly simple but in the second case your net income is more even if you are saving less in terms of tax benifit. I understand that if you can generate more from the extra money in the OD account, than what you save in terms of interest, then it makes sense but that is a different discussion. Am I missing something here?
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Old 19th June 2017, 16:41   #533
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Does anyone have any experience with Bajaj finance for home loan? They are giving loan at 8.5% for the home loan and also for the home improvement loan. Is it worth taking the plunge?
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Old 19th June 2017, 16:56   #534
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Does anyone have any experience with Bajaj finance for home loan? They are giving loan at 8.5% for the home loan and also for the home improvement loan. Is it worth taking the plunge?
Bajaj Finance is an NBFC and I repeat, avoid loans from NBFC's as they are not mandated to link the interest rates with the MCLR rate that RBI updates time and again. Over a period of time, your interest rate will always be significantly higher than the MCLR.

Prefer banking institutions for the home loan.
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Old 19th June 2017, 17:29   #535
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Default Re: Help with a home loan!

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Originally Posted by prabhuferrari View Post
Does anyone have any experience with Bajaj finance for home loan? They are giving loan at 8.5% for the home loan and also for the home improvement loan. Is it worth taking the plunge?
Almost all the banks now are giving away loans at 8.35-8.5%. Any specific reason you looking at bajaj finance? As Vinit mentioned its preferable to stay away if you have other options at similar rates.

Question to experts : With rate of interest now hovering around 8.3-8.5%, if interest comes under 2L per annum(tax benefit) is it advisable to go for pre-payment? As that would further reduce the interest and eventually tax benefit. Or is it better to avail as much tax benefit as possible and park the extra money in PPF or likes? Am not bringing MFs here into equation as they are market-bound.

Last edited by SoumenD : 19th June 2017 at 17:33.
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Old 19th June 2017, 20:59   #536
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Bajaj offers a flexi pay over draft facility at 10.5% interest. That's the only reason. Does SBi also have overdraft facility ?
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Old 29th June 2017, 14:15   #537
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Default Re: Help with a home loan!

Hi Guys

Need your help on this.
I have a ongoing home loan from ICICI which started in Jan 2012. At that time the ROI was 10.25 floating. From Day 1 i have been paying a fixed EMI every month and never visited the branch to check the ongoing rates. I had been receiving the mailers at time whenever the ROI got changed from ICICI. My last ROI till May 2017 was 9.6. In Jun 2017 , i visited the bank for a part payment and a person sitting there was negotiating on ROI to be 8.4. Only then i got to know that i too can get it reduced. Hence asked the Executive and they readily agreed to reduce the ROI by charging me a conversion fee to which i agreed.On discussing further the executive informed that the lending rates are based on 2 types of ROI , one based on RBI and the other which is ICICI decided. As per him the mailers that i used to get was when the RBI changed, but to get the ICICI ROI change benefits one need to visit the branch and request for it. I may be sounding naive here but this is what i know.

Now my questions are
  1. Is the above theory true ?Could i get the ROI changed earlier too. Did i made a mistake here
  2. How do i get to know that had i been paying an extra amount and by how much since i do not know what best ROI i could have got in the last 5 years.
  3. What options do i have now - Can i request the bank to reverse the interest i paid them extra.

Also, i am sharing this here , for all the people like me who do not know that you can get your ROI reduced

Thanks for your help in advance
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Old 29th June 2017, 14:52   #538
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Default Re: Help with a home loan!

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Originally Posted by RaSing View Post
In Jun 2017 , i visited the bank for a part payment and a person sitting there was negotiating on ROI to be 8.4. Only then i got to know that i too can get it reduced. Hence asked the Executive and they readily agreed to reduce the ROI by charging me a conversion fee to which i agreed.On discussing further the executive informed that the lending rates are based on 2 types of ROI , one based on RBI and the other which is ICICI decided.
This sounds correct. You can opt to stay on base rate (which is bank decided) or migrate to MCLR, which is mandated by RBI. PLease refer to this post of mine which may help, since I was in a similar situation and opted to migrate to MCLR.
Quote:
Now my questions are
  1. Is the above theory true ?Could i get the ROI changed earlier too. Did i made a mistake here
  1. Simple answer is Yes. It's a valuable lesson to keep track of the market. Usually once we get used to the idea of an EMI, there is inertia to better the ROI. But, as both of us have found out, it could amount to a huge savings.
    Quote:
  2. How do i get to know that had i been paying an extra amount and by how much since i do not know what best ROI i could have got in the last 5 years.
  3. What difference will this info make now except make you more miserable? Treat it as sunk cost and forget about it!
    Quote:
  4. What options do i have now - Can i request the bank to reverse the interest i paid them extra.
Well...you could try. But no bank will entertain reducing ROI retrospectively. Caveat emptor and all that
Quote:
Also, i am sharing this here , for all the people like me who do not know that you can get your ROI reduced
I think the mistake we make- including those who are otherwise extremely savvy about money- is assuming that "floating rate" regime means the bank will conscientiously pass on benefits of reduced interest rate to us as soon as it kicks in!
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Old 29th June 2017, 15:17   #539
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What difference will this info make now except make you more miserable? Treat it as sunk cost and forget about it!

Well...you could try. But no bank will entertain reducing ROI retrospectively. Caveat emptor and all that

I think the mistake we make- including those who are otherwise extremely savvy about money- is assuming that "floating rate" regime means the bank will conscientiously pass on benefits of reduced interest rate to us as soon as it kicks in!
I think you are right noopster. But it hurts specially since the amount here might be in several lakhs. It feels like the bank has cheated on us. For people who buy even a phone comparing prices at 3 different websites and try saving a few hundreds, this bank has cleverly made lakhs. I mean it feels like as if i am a fool. And , all m trying now is to check if i still have a chance to recover that money which i know is rare chance , but still !
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Old 29th June 2017, 17:06   #540
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Originally Posted by SoumenD View Post
Question to experts : With rate of interest now hovering around 8.3-8.5%, if interest comes under 2L per annum(tax benefit) is it advisable to go for pre-payment? As that would further reduce the interest and eventually tax benefit. Or is it better to avail as much tax benefit as possible and park the extra money in PPF or likes? Am not bringing MFs here into equation as they are market-bound.
I have never come to understand this logic, which quite a few people apply.
Out of the interest expense, only the 30% (max) is borne by government in terms of deduction of taxable income. So I usually ask people why would they want to incur the 70% additional expense when it can be avoided by repayment.

In any case, the decision to repay the home loan should not be based on the interest tax deduction. It should be based on the expired tenure of the loan.
Eg: If the loan tenure is 20 years, then one can benefit from repayment of principal up to 7-8 years max. Beyond this, there is no point in making any repayment whatsoever. Because major portion of the interest component of 20 years is recovered in these first 7-8 years. After that, there will be hardly any benefit of repaying. One might as well enjoy the credit and park the funds in hand in some other investments. Even a bank FD @ 7 p.c.p.a. will prove more beneficial than repayment of home loan after the initial 7-8 years.
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