Will interest rates go down after today's credit policy? How will those borrowing for home loans below Rs 20 lakhs benefit?

How will personal loan borrowers be impacted because of the credit policy? Will there be an increase or decrease in interest rates on auto loans?

Is there any provision in the law that can help you claim tax benefits on a home loan even when you are not the owner or a co-applicant?

Should you stay put with floating or switch to fixed rate home loans?

Get Ahead Money expert Harsh Roongta answered loan related queries in a chat with Get Ahead readers on April 24, just after the credit policy was announced.

For those of you who missed the chat, here is the transcript.

Part II -- Rising EMIs? What should you do

mamu asked, Dear Harsh, How will the RBI credit policy impact my home, personal, auto and other loans. Will banks reduce rates or are they likely to remain stable?

Harsh Roongta answers, The stance of the regulator is not the only input (though it is a pretty important one) which determines retail loan rates. As far as today's announcement is concerned, the direct impact is on home loans where the risk weightage on home loans to individuals upto Rs 20,00,000 has been reduced from 75 per cent to 50 per cent.

What it means is that the banks will need slightly less capital while funding home loans to individuals up to Rs 20 lakhs. This may not necessarily lead to a drop in home loan rates. We will need to wait and watch, though my reading is that we will just see slightly better availability for home loans below 20 lakhs as compared to before without any drop in interest rates.

Other loans remain unaffected and are unlikely to see any drop in interest rates. In fact, overall, the chances of an interest rate increase still remains, though this may now have lessened somewhat for home loans below Rs 20 lakhs.

Binex asked, Based on today's scenario what's better? Fixed or floating home loan?

Harsh Roongta answers, The answer remains the same.

This is not a one-time decision but needs to be reviewed periodically (at least once every six months).

Given today's position it is better to opt for a floating rate loan after taking the precautions mentioned in the detailed response. For a detailed response, please click on this link: http://www.apnaloan.com/articles/home-loan-india/tostayputortofloathomeloanarticle.html.

rathansingh asked, I have two personal loans with ICICI totalling to Rs.1.5 lakhs at 16 per cent interest for 3 years. I have already paid 50 percent of the installments. Will there be any implications of today's development. Kindly suggest.

Harsh Roongta answers, As already mentioned, there may not be any immediate impact (either positive or negative) due to RBI policy announcement made today. After all, RBI does not determine market rates though they have an important impact. What has been done today should not have any immediate impact. But let's wait and watch.

Arindam asked, Dear Harsh, is it possible that after the monsoon we may see a drop in home loan rates?

Harsh Roongta answers, If anybody can answer that correctly, he could make a killing on the money markets. But, more seriously, the scope for interest rates going down in the next three months does not seem very high.

NVD asked, Sir, I have taken floating home loan @ 9.5 per cent. The EMI started w.e.f. February 2007. The loan amount is Rs 13 lakhs for 18 years. I have cancelled some bank FDs whose rate of interest was only 6 per cent and paid prepayment amount equivalent to 20 EMIs in April 2007. I have requested the Bank to reduce the repayment period accordingly. Kindly advise what to do next when loan interest rate will be increased shortly.

Harsh Roongta answers, Given the current high interest rate scenario, our advice to consumers has been to prepay if possible.

sachin_s_shirke asked, can I claim two housing loans for tax rebate purposes? I am staying in Pune and I have a flat in Mumbai and Nasik!

Harsh Roongta answers, There is no bar for claiming tax deductions with respect of loans taken to acquire two or more properties. In fact, the popular misconception that the interest payable is restricted to a maximum of Rs 150,000 is also not correct since that limit only applies to one self-occupied property. 

sanjaysanjay asked, If I'm planning to buy a house, should I wait for the interest rates to drop if there is a possibility of that in near future? How probable is it and how long should I wait?

Harsh Roongta answers, Buying a house for one's own residence is a decision that has to be taken once you feel confident about your income stability and decide to make a base in a specific location. Interest rates only decide your budget outlay since that will affect the amount of loan that you can get. In any case, if buying your own house otherwise makes sense and is affordable by you, then you should go ahead and do it.

Interest rates move in cycles and home loans being a long tenure loan, you will surely benefit from the turn in the interest rate cycle when it actually happens.

spal asked, Will the EMIs change in case of two-wheeler loans and the personal loans in these type of circumstances?

Harsh Roongta answers, Normally most banks have fixed interest rates for 2 wheeler loans and personal loans. So any increase in interest rates normally will not affect existing loans.

Rohin asked, Hi Harsh, I have a query regarding home loan tax benefit. I purchased a ready-to-move-in house in Jan '07. Flat is in my wife's name while in home loan, I am a co-applicant along with my wife (who is also working). Can I claim tax benefit as house is not in my name? Thanks.

Harsh Roongta answers, Normally only owners or co-owners are eligible to claim tax benefits on home loan repayments. Since you are neither, you would normally not get any benefit.

However, you may make an attempt to claim the benefit by virtue of the clubbing provisions of Section 64. In any case, the benefit for deduction of principal repayment will not be available. See this link for detailed answer:  http://www.apnaloan.com/taxtips/home-loan-india/wifeownerhusbandcoborrower.html.

psam asked, ICICI bank is increasing home loan rates every quarter on my existing loan but they are giving loan to new customers at lower rates thus harassing old customers. Can we take them to court?

Harsh Roongta answers, You can do better. Just vote with your feet. Go to another lender who will be happy to take over the loan at a lower rate if your repayment track record has been good. This may work better even after taking into account any pre-payment charge that you may have to pay to your existing lender.

Unfortunately, you may not suceed in any legal action as the bank is technically correct in charging you the increased interest rate even while giving benefit to its new consumers.

Dev asked, Hi Harsh and a very good afternoon. When banks are raising interest rates of home loans for floating rate home loans, is there any guarantee that the interest rates on fixed rates will not be changed or whether the banks have the right to increase the interest rates on fixed rate home loans also.

Harsh Roongta answers, That's a good question. Only a very few banks offer 'genuine' fixed rate loans -- which means the bank has no right to change the interest rates irrespective of whatever happens.

Just read your loan agreement carefully before signing it. It makes no sense at all to go in for a so-called fixed rate loan where the bank reserves the right to change it based on vaguely defined eventualities.

callingabhijeet asked, I have a floating rate home loan of Rs 13,00,000 outstanding from HDFC. Now SBI is offering me loan at 5 per cent cheaper interest rate and giving the money saver option at the same rate. What should I do, should I switch?

Harsh Roongta answers, Go for it. But you might want to check out how much prepayment charges you will have to pay to your existing lender. Also you can find out whether other lenders are offering better rates.

Pravin asked, I am planning to take a flat in Pune. I have Rs 10 lakhs in cash. Which option is better: a. make more down payment and take less loan or b. go for higher loan with less down payment?

Harsh Roongta answers, Consider a 'home saver' option where you can deposit the money in a linked current account and save interest on that amount as long as it remains deposited in the linked account. This gives you the flexibility to use the funds and at the same time be able to withdraw it if required.