In spite of the fact that research reports indicate that real estate prices have fallen and are at realistic levels and some even go a step further in claiming that prices have bottomed out across the country, it is still next to impossible to buy a house with your own money. This becomes even more difficult if you are planning to buy the property in metros where prices are much higher. Prices are still at a level where it is difficult for a common man to afford a property of his choice in a decent locality.
Its true that number of housing finance companies (HFCs) has increased considerably over the last couple of years and these HFCs are most eager to finance your purchase. But HFCs finance up to 85% of the property price or arrive at the finance amount (loan amount) by assessing your repayment capacity. While determining your repayment capacity HFCs make sure that the EMI (equated monthly installment) for the loan amount never exceeds 30% to 50% of your net monthly take home (household income). This is to ensure that you are not burdened with extra debt/commitment every month and your life is not affected adversely. And for housing finance companies probability of default from customer side decreases significantly.
Is the finance amount enough to buy the property?
Most likely no! If you are living in a metro like Mumbai, where property prices have slumped, it is still beyond the reach of the common man. So what should you do? Very simple, club your spouse’s income to yours. HFCs allow such clubbing. This will enhance your repayment capacity and you would be eligible for higher loan amount and buy the property of your choice.
For instance, you are earning around Rs 50,000 per month and your spouse’s earning is Rs 30,000 per month and you want to buy a property worth Rs 2,500,000.
No HFC will finance the required amount for your purchase, as your repayment capacity would entitle you to a loan in the range of Rs 1,400,000 -Rs 1,875,000. This might not be sufficient for the purchase. But if you club your spouse’s income, the loan eligibility will increase to Rs 2,200,000 to Rs 2,800,000, more than enough to meet your requirement. But of course you will have to shell out 15% of this agreement value as your contribution towards buying the property (HFCs finance only up to 85% of the agreement value).
Let's see the repayment schedule for a loan of Rs 2,500,000
Assumption:
Interest: 12.5% annual reducing (fixed)
Year: 15
EMI: Rs 31,410
First year repayment
| Years |
EAI (Rs) |
Interest
component (Rs) |
Principal
component (Rs) |
| 1 |
376,909 |
312,500 |
64,409 |
EAI: Equated annual installment
So, clubbing your spouse’s income enabled you to buy a property of your choice. But this is not all! Look at the deal more closely. It has resulted in lot more benefit than you thought. Almost doubling the tax saving on account of tax sops attached to repayment of housing loan (Rs 150,000 on tax component of the repayment and Rs 20,000 on principal component of loan repayment).
Let's see how
Tax benefit:
The tax benefit for you on repayment of this housing loan of Rs 2,500,000 would be to the tune of about Rs 50,000 (Rs 49,900) in the first year. Now since your spouse is a co-owner and contributes towards repayment of the loan she would also be eligible for the tax benefit (both principal and interest component). So the total benefit would mount be Rs 100,000 per annum. Now see the repayment per year towards the loan, it is Rs 376,909 effectively only Rs 276,909 (Rs 376,909-Rs 100,000). Isn’t it great?
What should you do?
To make the best out of the prevailing buyer-friendly tax laws regarding the repayment of housing loan you should always make sure that the higher earning member pays higher portion of the housing loan EMI. This is because tax benefit accrues in proportion of individual contribution towards loan repayment within overall ceiling of Rs 150,000 on interest component and Rs 20,000 on principal component for an individual. Higher earning member can claim higher tax benefit against his higher taxable income.
So, if you are planning to buy a house, it makes better sense to include your spouse as co-owner if spouse’s income is taxable. This will result in higher tax saving in addition to boosting the loan eligibility.
If you are in Mumbai and wish to meet our representative for the purpose of taking a home loan, please register here
| Need help with Financial Planning? Call PersonalFN today! |
| Click on the city name to write to us |
|
