The housing loan today is cheaper than ever before.
A glance at the housing finance market reveals that the lending rates are in the range of 11.5% to 15%, making it ideal for the middle-class salaried-income group. Gone are those days when huge EMIs (Equated Monthly Instalments) were the deterrent factor in the quest for owning a house. Unrealistically high real estate prices were another deterrent.
Things have changed dramatically in the last couple of years! Interest rates have fallen by 2-3%. Thanks to government initiative of making housing affordable by providing huge tax benefit and signalling out low-interest rate regime. Most of the housing finance companies have responded positively to government initiative and lowered their lending rates. According to industry experts, across the country even the real estate prices have bottomed out.
This is the ‘time’ for middle class salaried income group to take the opportunity and fulfil the cherished desire of owning a house. Today middle class families with a combined monthly income of Rs 30,000 or so can very easily get a loan in the range of Rs 800,000 to 10,00,000 for 15 years. The EMI would be in the range of Rs 10,051 to Rs 12,564, which is certainly affordable.
Now lets factor in the tax benefits!
Assuming you are in the highest tax-paying bracket, your monthly outgo would further reduce in the range of Rs 2,883 to Rs 3,520. This is what you are going to save every month in the first year of loan repayment on account of tax benefit. In effect, while the gross outgo would be Rs 10,051 or Rs 12,564, actual outgo (net of taxes) would be only Rs 7,168 or Rs 9,044. Now the EMI burden looks less threatening. Isn’t that great! That’s largely due to the tax breaks.
The table below shows working:
| Loan (Rs) |
Interest rate (%) |
Monthly outgo
(EMI) (Rs) |
Tax saving
per month (Rs) |
Net monthly
outgo (Rs) |
| |
|
|
Principal |
Interest |
|
| 1,000,000 |
12.5 |
12,564 |
333 |
3,187 |
9,044 |
| 800,000 |
12.5 |
10,051 |
333 |
2,550 |
7,168 |
Going by the trend in the housing finance sector and the government’s positive stand towards it, the tax break on housing loans is unlikely to be discontinued. So, right now it pays to borrow and buy your house!
