Home loan rates are increasing and more is in the offing. Can you prepay your home loan and save money on interest paid?

What is the best time to go for a home loan? Should one go for it once the interest rates start going down? Do you knwo when this will happen?

Do you get deduction on rent paid? Can you get home loan to buy agricultural land? Can you treat the processing fees as 'interest' and claim deduction accordingly? Is insurance premium deductible under Section 80C?

Home loan expert Harsh Roongta answered these and other home loan related queries in a chat with Get Ahead readers on March 13.

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

Part II: No tax benefits for home loan co-borrowers

Gopinath asked, Sir, I have taken on a housing loan from HDFC Ltd 2 years ago for an amount of 13 Lacs.My housing project(AFNHB-- Air Force Navy Housing Board)requies that i pay them at some specified intervals and so the bank disburses me in part on as required basis. Now my housing project has been stuck in litigation for over an year and i am just paying the Pre EMI to HDFC for teh 4 lacs that they have disbursed to me. My efforts of converting that amonut into a loan and commence payng EMI have not been fruitful. I am not sure when the litigation will be over. What is the best thing i can do now?

Harsh Roongta answers, If you have the resources you could prepay the loan and save money on further interest. You can aproach another bank for a loan and when the litigation is over.

deepika asked, just i want to know whether 30% deduction is there on rental value?

Harsh Roongta answers, Yes. This is a standrad deduction and you need to show any proof of actual expenses in this regard.

ramu asked, I have just bought a house worth 37 lakhs and would be going in for a home loan with UTI at 10.5 % Floating , should i go ahead right now or should i wait , or should i go in for a floating rate option?

Harsh Roongta answers, The best time to buy your home is when you have the necessary resources to pay the down payment and are reasonably confident of your income in the future to meet the EMI payment as well as when you are most likely to stay in the specific city for some more time. This applies to buying a property for the purpose of your own residence and does not apply if you are buying the property as an investment.

NAVIN asked, I HAVE ALREADY RECEIVED A LOAN FROM LIC HOUSING AND I HAVE PAID 1% PROCESSING CHARGES ON THE SAME. CAN I GET BENEFIT IN INCOME TAX FOR F.Y.2006-07?

Harsh Roongta answers, If the house property is ready for possession as on March 31, 2007 you can treat the processing fees as "interest" and claim deduction accordingly. This is as per definition of interest under section 2(28A)

pramod asked, Good Afternoon Sir, main apase yeh poochchana chahata hoon ki home loan ke liye kaunse documents ki jarurat hoti hain aur home laon ke liye combine apply kar sakte hai ki nahi? meri salary Rs. 7000/- hain aur sister ki salary Rs. 7000/- hain. Mujhe Kitna home loan mil sakta hain. please give me your expert advice.

Harsh Roongta answers, Normally the documents required from all the joint applicants are : 1) Income documents such as salary slips, Form 16 as well as bank statements for at least 12 months 2) Identity documents such as passport/driving license/ration card etc. 3)Proof of existing residential address 4)Property documents. Regarding yoru second question most banks may not allow the clubbing of a brother and sister's income. Hence this particular clubbing will be difficult.

shyam asked, should i get tax benefit under 80c for partial prepayment of housing loan

Harsh Roongta answers, yes

Venugopal asked, Dear Sir, My loan amount is Rs. 27 Lacs taken in March 2006 from ICICI for 18 years tenure. It started with interest rate of 7.5% and now gone upto 10%. In present situation can I go for fixed rate loan or transfer of loan to another bank? Please suggest.

Harsh Roongta answers, Dont panic. If another bank is giving you a better floating rate (which may not be very easy) then shifting to a new lender may make sense. If you have some resources you can also pre-pay a portion of the loan to bring down the EMI burden. Otherwise you have no other option but to tighten your belt and wait for interest rates to go lower in the future.

Venkat asked, Dear Sir,Greetings!!! I have got a 20years loan of 35lakhs.I preferred a fixed rate.It is at 9.50%.Do you think th fixed rate will also go up as many say?

Harsh Roongta answers, This question can only be asked in India. But of course in our country banks can get away by calling any kind of loan as a fixed rate loan despite the fcat that it may be fixed for only a short period or have a clause allowing the bank to raise rates on the happening of vaguely defined events. So to answer your question this will depend on the terms of the agreement that you have signed with the bank.

Anand asked, My question is related to the way interest and principal components are distributed in the EMIs of repayment of a housing loan. I guess all banks have distribution of interest and principal in such a way that interest part is more in the initial years. If a person pre-closes a loan, he effectively ends up paying a higer interest rate.

Why doesn't RBI come out with guidelines such that the distribution of interest component in uniform across the tenure of the loan so that even in case of pre-closure consumer ends up paying same interest rate ? As an example, if I take a loan at 9% interst rate for a tenure of 20 years and decide to pre-close in 1 year, I effectively end up paying 15 % interest. If I pre-close in 5 years, I end up paying 11-12 %. Can't this kind of distribution be challenged as per law ?

Harsh Roongta answers, Whilst I am no apologist for some consumer unfriendly policies followed by the banks on this matter they are not at fault. Whether you pay by EMIs or in any other manner the amount of interest in initial years will necessarily be higher as the loan amount outstanding is high. This is a simple arithmatic process. You can also use the amortisation calculator on www.apnaloan.com.

SandipG asked, what is your predection about the interest rates ?

Harsh Roongta answers, If I could accurately predict interest rate movements I would make a killings in the money markets. But more seriously I think a lay consumer should stop trying to time the market based on interest rates. Home loans are a means to an end namely buying your home and interset rates will even themselves out over the long tenure of such loans. If you are completely risk averse then you should choose a genuine fixed rate loan.

J Bala asked, I HAVE TAKEN A TWENTY YEAR LOAN FROM HDFC IN JAN 2007. THEY ARE OFFERING AT 9.5% FLOATINGF AND HAVE GIVEN IN THE AGREEMENT THAT THERE CAN BE A VARIATION OF 3.5% UPWARDS OR DOWNWARDS DURING THE TENURE. I WISH TO KNOW WHETHER THIS WILL BE THE BOUNDARY FIGURE OR CAN THEY REVISE THE LIMITS BEYOND 3.5%?

Harsh Roongta answers, That depends on what the home loan contract says. A bank cannot incerase rates arbitarily. They should have the right to do so under the loan agreement that you sign with them.

saj asked, Iam staying in my parents house.Could i get a home loan to construct a new House on the first floor.If yes,whats the process to apply ?

Harsh Roongta answers, Yes you can provided your income is sufficient to justify the loan and your parents are agreeable to be the co-borrowers for the loan. Please note that you will not be eligible for any tax benefits if you are not a co-woner in the property.

Ashwani asked, Hello Harsh !! I got a homeloan at 8% fixed and bargained with the bank to strike off the MMC clause in the aggrement which they did by simply scratching it in my copy alongwith a signature. do you feel that it safeguards my interests in case of rising intrest rates?

Harsh Roongta answers, I am assuming the signature is from the bank's authroised signatory. If so there is no way the bank can increase interest rates for you. Congratulations.

rajblr asked, I would like to take a farm house, its as good as agricutual land. Would it be considered under Home loans ?

Harsh Roongta answers, Sorry no home loans are available for agricultural properties.

nitin asked, sir, i will be taking home loan in Mar '07, kindly advise whether i should go for fixed or floating loan.

Harsh Roongta answers, This is one question that bothers all buyers. Fixed gives a sense of security... while you wonder am I paying too much all the time. This is one question that perennially bothers the person going in for a home loan. The biggest reason is because in a rising interest rate regime, one always feels safer in a fixed rate.

Fixed Interest Rate loans: as the name suggests the interest rate in these loans should remain constant throughout the tenure of the loan. These loans are normally priced higher than a variable rate loan for a similar tenure. That is, in the present market scenario while you would be able to get a floating rate loan at 10 per cent interest rate, the fixed rate would be somewhere around 12 to 13 per cent. The other option is variable/floating rate loans. This kind of loan is also called 'adjustable rate' home loans. Here, the interest rate is linked to a benchmark rate.

Some banks use their 'prime lending rate' (PLR) as the benchmark rate. Some banks have a specific benchmark rate that they use for home loan purposes. Typically, the interest rate applicable to your loan tends to be a certain percentage below this benchmark rate.

nagendra asked, I am a salaried person having income of Rs 2 Lakhs. I had taken home loan from SBT and pd Loan Insurance charges. Is it tax deductiable?

Harsh Roongta answers, Insurance premium is deductible under section 80C.

Part II: No tax benefits for home loan co-borrowers