home

The Subvention Scheme: What Home Buyers Need To Know

Every respected family man is looking for the perfect home loan. As potential home buyers, we must be aware of the advantages and disadvantages of the various options available in the market. At the time of purchasing a new home, the developer suggests different schemes to the home buyer as well. One of these in the past few years has been the subvention scheme.

What does the subvention scheme entail?

The home buyer pays a margin of the amount to the developer. This is around 10-20% of the price of the property purchased. After that, he does not have to pay anything until the property is complete and he has full possession of his new home.

During the time from purchase of the home up until its completion, the balance amount is paid by the bank to the builder. This is a loan with a three-way agreement including the developer, the home buyer and the bank.

During the period of construction, it is the developer who pays the interest on the home loan to the bank, which provides the developer with the necessary money as the project progresses.

Does the subvention scheme work?

To a new home buyer, this scheme sounds like a dream come true. You need not worry about EMI payment until you’ve received the developed property.

But do not builders already have various schemes to help them in their projects? As a business, a developer already has the option of loans at lower interest rates. As a real estate business, the developer also has access to assets to be mortgaged. This will help unlock credit, all at a lower interest rate.

The sad truth that remains is that as a builder there is already a large debt that must still be repaid. While banks will opt to charge higher interest on new loans taken by the builder they approve when an individual with a good credit score opts for a home loan.

So while banks are under the impression that the real estate industry may be a bad investment the new home buyer still needs a good place to live.

What home buyers need to know about the subvention scheme

Though the scheme seems like a perfect plan for property investors, we need to be made aware of the shortcomings that it possesses.
In the subvention scheme, builders receive the instalments from the bank in a specific period. They also opt to pay interest on the loan for the same amount of time. Once that period is complete regardless of whether the home buyer has received possession of the home, the builder has the option to stop payments. He can also divert funds to other projects. It may take years for the project to be completed and the home buyer is left to fend for themselves until then.

As payments are halted on the home loan, it is the home buyer that suffers. This delay harms the CIBIL score and lowers the buyer’s ability to acquire good future loans. Waiting until the project is complete proves harmful to the buyer’s financial health.

The recent developments in the Subvention scheme

In the past few months, after numerous frauds committed by developers, the National Housing Bank has requested lending institutions to refrain from the subvention scheme. This will definitely harm the two main bodies of the real estate industry i.e the home buyer and the developer. With an increase in interest rates for home buyers, developers will be forced to face a liquidity crunch in cash flow. Many developers believe that the government should be in support of such schemes to help the growth of the real estate industry but there are those who want what is best for the home buyer.

Are there other schemes like this?

There are other schemes available in the industry to help home buyers like construction linked payment plans. These plans ensure that the developer receives fixed sums of cash flow when certain milestones are completed. These milestones or slabs make sure of completion of the home and work in favour of the home buyer. It keeps builders in check. 25% of the total amount is given only after possession is acquired by the home buyer.

Key Takeaways

The government, in order to boost the economy of the real estate industry, is constantly working on such schemes. But however many have loopholes and in the end prove harmful to the home buyer. Find out about past incidents with the developers before you step into these options. We all love a good bargain, but be sure to research well before you take the plunge.

Check Out Our Down Payment Program To Help You With Your Home Buying Process!

Saving for Home Down Payment

7 Smart Income Tax Benefits To Take Advantage Of With Your Home Loan

The word taxes has always been associated with what benefits you can gain from them. So when it comes to buying your dream home, the Indian government has especially with the last budget is encouraging citizens to invest more into buying their first home.

Did you know that your Home Loan is eligible for tax deduction under section 80C? So while you may be paying interest on the money you’ve borrowed from your bank or NBFC, you also have the option of multiple tax benefits to reduce your outgo on your taxes. Schemes like Pradhan Mantri Jan Dhan Yojana are helping develop the housing sector in India. These schemes strive to reduce the problems of affordability and accessibility. Let’s map out the different sections that you can apply for a deductions.

Interest Deductions

These yearly deductions are related to interest paid on a property loan. If the property under question self-occupied, an individual is allowed to claim a maximum deduction of Rs.2 lakh under Section 24. This Rs.2 lakh deduction is applicable only when the property is completed for construction within 5 years from the Financial year in which it was started.

If the construction on the property is not finished within the mentioned 5 years, your claim is reduced to only Rs.30,000. So, if your loan was taken on 30th April 2016, the construction of the property should be completed by 31st March 2022. If the property is being let out on rent, the buyer has the ability to claim a limitless amount that was paid to the bank as interest.

An individual can claim the amount spent as interest if the property is given out on rent. However, This doesn’t take into consideration a completed project or an under-construction one. But, the overall loss that is claimed is restricted to Rs 2 lakh under the head of House Property. This Deduction can be claimed from the year in which the construction of the house is completed.

Interest Paid Towards Home Loans During Pre-Construction Period

If you have invested in an under-construction property and have not resided in the home as yet, you continue to pay the EMIs. Your ability to claim deductions start only when the property is fully constructed or you invest in a recently constructed home.

You can still enjoy deductions before the completion of your home. Pre-construction interest helps out in situations like these. The income tax law states that interest paid during the pre-construction time can be claimed as a tax deduction in five equal instalments. This is from the year in which the construction of the property is completed. The maximum amount, however, remains capped at Rs 2 lakh.

Repayment On Principal

Under Section 80C, the principal portion paid as the EMIs for the financial year is deductible. The maximum amount that one can claim goes up to Rs 1.5 lakh. One set back with this structure is that the house should not be sold within 5 years of its possession, otherwise, the amount that was deducted is added back to your income in the financial year that the house was sold.

Repayment On Stamp Duty and Registration Charges

Under section 80C, a deduction on stamp duty and registration charges can be claimed within a limit of Rs 1.5 lakhs. But can be claimed in the year that the expenses happened.

Under section 80EE

Under Section 80EE there are additional deductions that are allowed for home buyers up to a maximum of Rs 50,000. To claim this deduction, the amount of loan should be Rs 35 lakhs or less and the value of the property should not exceed Rs 50 lakhs. The loan should be sanctioned between the period of 1st April 2016 to 31st March 2017. The individual does not own any other house at the time the loan is granted. Section 80EE was reintroduced effectively from the Financial Year 2016-17 and the earlier deduction was allowed under Sec 80EE and was made available for 2 years, namely the financial year 2013-14 and the financial year 2014-15.

Under section 80EEA

The budget 2019, further introduced an additional deduction. Under Section 80EEA, home buyers are allowed a claim upto a maximum of Rs 1,50,000. The stamp value of the property should not exceed Rs 45 lakhs. The loan should be sanctioned between 1 April 2019 to 31 March 2020. The individual should not own any other house at the time of sanction of the loan. The individual must also not be eligible to claim deductions under section 80EE.

Joint Home Loan

A home loan that is taken jointly, the co-holder of the loan can claim a deduction on interest up to Rs 2 lakh each. Principal repayment in this case under section 80C can be claimed up to Rs 1.5 lakh each individually. They must also be co-owners of the home that the loan is taken on. So a loan taken jointly by a family can help claim a bigger tax benefit. Let’s say you are a co-borrower as well as the co-owner of the house, you can each claim up to the maximum deductible amount under this section.

Understanding these tools will make the home buying a much easier tax. So if you are ready to buy a home, we’ve got your down payment covered.

5 tips for Home loans

5 Easy Ways To Manage Your Home Loan

If you’ve taken a Home Loan or plan to take one, here are a couple of tricks up your sleeve to manage it better. Stay ahead of your home loan EMI with these 5 simple tips.

Make repayment a priority

Paying EMIs on time boosts your creditworthiness. It may be difficult at first, but you must remember that a good credit history is an essential part of your financial journey. Future lenders judge your credibility based on your Credit Score. Failure to pay your Home Loan EMIs on time take a major blow on your Credit Score. As a result, the chances of your loan and Credit Card applications getting rejected in future increase significantly.

Bonus EMI Tip to make sure you maintain your creditworthiness: Schedule the EMI close to your salary date. This ensures sufficient funds in your account and minimize chances of default due to lack of funds.

Try not to skip any home loan EMI, maintain your credit score to avoid any penalties from your lender.

Use lump sums to prepay

Paying off your Home Loan as soon as you can is the one thing every homeowner dreams of. So, opting for a high monthly payment can help you reduce the loan tenure. As a result, the total interest that you’re supposed to pay to the lender also goes down. By opting to pay more every month, you reduce your own financial burden. This helps an individual invest in other projects of life like retirement planning, a car loan or even a second home.

Pay an extra EMI every year

Paying an extra EMI every year can be tough initially. But it helps put to rest your home loan. There is usually no prepayment charge for floating rate term loans. By paying an extra EMI every year, you can reduce your overall outstanding principal amount. Lenders are unlikely to complain if you repay a little extra every year. Over a 10-12 year period you find your loan paid off soon, erasing the stress of the loan.

Switch to a lower interest rate

Be aware of market fluctuations and updated with reduced loan interest rates available by different banks. Switching to a lower interest rate than your existing one will shave a few years off your loan.

P.S. – But be careful. Don’t jump too many times at low-interest rate differences. If you’re getting a good dip in the rate of interest, you should definitely consider switching. But in case the difference isn’t much, it might be a bad idea to opt for that switch.

Get the math right

There are tools available online by banks and NBFCs that help you determine your financials when you repay a Home loan. For example: The Home Loan EMI calculator gives a clear understanding of monthly EMIs when you enter the details of your loan amount, tenure, interest rate, and processing fee calculation.

Loan amount: You have decided on a property and are aware of its price. After you have acquired your down payment, you will have a better idea of what loan amount you need to apply for. You then have an idea of the amount of your EMI’s.

Tenure Of Home Loan: Decided the loan amount, choose the tenure you would like to opt for, starting from 6 months to 30 years. Keep in mind, the longer the tenure of your loan, the higher the total amount to be paid back will be.

Interest Rate And Processing Fee: The next thing you need to enter is the interest rate offered by your preferred bank. Generally, banks have a 2% processing fee on Home Loans which needs to be accounted for as well when calculating your monthly EMI.

Prepayment Option: Some people prefer to prepay a certain amount of their loan. The Home Loan EMI calculator gives you an option to specify whether you wish to prepay your loan amount. Your monthly Home Loan EMI amount is calculated based on whether you choose a Yes or No on the prepayment option.

The Home Loan EMI calculator is a simple, fast and reliable source of information to calculate your Home Loan EMI’s.

Do A Quick Rain Check Before You Apply For A Loan For A Quicker Procedure

Step 1: You can also use our loan calculators to check your eligibility and you’ll get an assurance of your current capacity.

Step 2: Let HomeCapital take care of your down payment requirements

home-loan-eligibility

Home Loans – How To Check Your Eligibility

Home loans and the whole process associated with them may seem like an unending task, but let us remind you that we live in 2019. The internet and a plethora of startups have just made our lives and the home loan process extremely simple. We’d like you to sit back and relax as we spread out the basics for starters.

Here are a few questions you need to ask yourself about home loans.

Home Loans and Their Eligibility Criteria

Home loan eligibility is dependent on an individual’s income and their repayment capacity. There are various universal factors that determine this. Age is an important aspect. The present age and the working years that an applicant has recorded plays a major role. This is also connected to their present and future financial position of the individual. However maximum loan tenure is generally capped at 30 years.

Your Credit or CIBIL Score

Keep a track of your credit score. This score makes it easier to get approved for a housing loan. Your score could vary from 300- 900 points, depending on the individual’s past loan or credit repayment record. A good credit score is equivalent to 750+ points and above. Lenders also take into account other Financial Obligations such as an existing car loan, credit card debt, etc.

A Co-applicant: Is it necessary?

Firstly in order to proceed with this point, we need to distinguish between a co-owner and a co-applicant. A co-owner is a joint owner of the property whereas a co-applicant need not be a part-owner of the property.

All co-owners of the property will have to be co-applicants of the home loan. However, all co-applicants need not necessarily be co-owners and this is the difference a buyer has to keep in mind. It is their income which is considered for credit.

Adding a co-applicant to a home loan helps to increase your loan eligibility. You can also buy a bigger home in your preferred location and there could be many tax benefits.

What is the maximum borrowing amount for home loans?

Before you plan on purchasing a home by obtaining a loan, you must keep in mind the ‘own contribution’ factor. This is the down payment that most lenders require. It comprises of at least 10-20% of the price of the home in question. The rest, which is 80-90% of the property value, is then financed by the lender. The total amount should also include registration, transfer, and stamp duty charges.

Even though the lender calculates a higher eligible amount, it is not necessary to borrow that amount or you could forget the hassle associated with down payments and check out HomeCapital Services – Where the down payment is taken care off!

What documents does an applicant need?

The basic documents that you require for a home loan are listed below.

  1. Application form
  2. Photo
  3. Identity proof
  4. Address proof
  5. Salary slip/ Form 16(Income Tax return)
  6. Bank account statement (the last 6 months bank statements)

Keep these documents handy always!

Check your rate of interest

It is crucial to check interest rates by various banks and NBFCs. This will help you make a choice better suited to your financial needs. Keep in mind the different types of interest rates that are currently provided; Fixed Interest rates and floating interest rates.

In a fixed interest home loan, the rate does not change throughout the loan tenor, irrespective of market fluctuations. The benefits include the ability to plan long-term. This makes it easy to budget other expenses. Customers also do not expect any future risks.

However in floating interest rates, the interest charges on your home loan changes to the tune of current most lending rates of the bank. The rate is linked to the latest published rate of the bank. This depends on multiple factors. After 2016, MCLR i.e. Marginal Cost of Funds-Based Lending Rate is also applicable only for floating rate-based loans.

Learning about your EMIs

When it’s time for your repayment installments, keep a tab on the tenure that you are picking to pay back your loan. Though smaller installments seem like the wiser choice, the longer duration and higher interest rates may not be the best option for many. Pick a repayment that is better suited for you.

Delayed start of EMI payments

In this type of loan, the payment of equated monthly installments (EMIs) begins at a later date. This is only available to salaried and working professionals aged between 21 years and 45 years and requires a highly secure job along with decent annual increments.

An Increasing EMI

In such loans, you can avail a higher loan amount and pay lower EMIs in the initial years. It then increases with the assumed increase in your income. The repayment schedule is linked to the expected growth in one’s income. If the salary increase falters in the years ahead, the repayment may become difficult.

A Decreasing EMI

The EMI is higher during the initial years and subsequently decreases in the later years. A higher EMI can also mean higher interest in the initial years. However, this will help pay off the loan at a faster rate.

Home loans with longer repayment tenures

Many banks also offer repayment products that are more than 30 years of duration. These, however, depend on the age and salary of the individual and the interest rates vary according to the financial status of the person. He could be middle-aged or even a freelancer.

An important note to remember is to make sure your EMI doesn’t exceed 40% of your total income.

Banks Vs Non-banking financial companies (NBFCs)

After you have taken into consideration the different types of loans that are available, you should also consider the advantages and disadvantages of both banks as lenders and Housing financial companies as lenders.

For instance, the best interest rates are always offered by a bank. But, if you have a low credit score, an NBFC could be better suited for you. It all depends on the type of services that you need. If you use banking services along with the home loan, the choice is a bank,

If it is only a housing loan, then you can evaluate your options by comparing associated charges and facilities provided the bank and HFC players.

Also, do your research before you apply for any of the two and always read the document carefully before signing. It is better to be safe and to have a clear understanding of your housing loan.