It146;s time for mera ghar

Shetty S. H., a small businessmen in Mumbai, got a shock of his life when during a chance meeting with his old friend he was told that home ...

Shetty S. H., a small businessmen in Mumbai, got a shock of his life when during a chance meeting with his old friend he was told that home loan rates have crashed to 7.5 per cent.

Till date, Shetty was paying 17 per cent interest to LIC Housing Finance on a Rs 1 lakh home loan taken in 1998. 8216;8216;Till now I was wondering why my home loan has not finished. Now I know the reason.8217;8217;

Unbelievable it may sound but there are lakhs of Shettys in the country who do not know that home loan rates have fallen to historic lows and are set to fall further. Lack of information and a bank8217;s reluctance to tell their old customers about falling rates is making people like Shetty poorer.

And if you haven8217;t taken a home loan or haven8217;t refinanced old home loan as yet then it8217;s time to take one.

Just a week back, the Reserve Bank of India has cut the repo rate 8212; the rate at which banks lend money to the central bank. This will result in banks cutting home loan rates by another 0.5 per cent, say analysts.

The rates are, in fact, already one of the lowest in the Indian lending history. The RBI says that home loan rates charged by State Bank of India has fallen from 11 per cent in April 2002 to 9.5 per cent in May 2003.

In the same period, the interest rates charged by ICICI Bank has dropped by 1.75 per cent to 7.5 per cent which is a mere 1.5 to 3.8 per cent over the bank8217;s interest rate on long term bank fixed deposits.

What you gain through Tax benefits

Story continues below this ad

The tax benefits on a home loan, under the Income Tax Act, are two-fold:
Principal repaid: Rebate under Section 88 2 of the Income Tax Act is available to individuals on repayment of the principal portion. For those borrowers whose gross total income before deduction rebate available up to Rs 1,50,000 is 20 per cent. More than Rs 1,50,000 but not exceeding Rs 5 lakh is 15 per cent. And for more than Rs 5 lakh is none.
Moreover, the rebate is allowed up to the maximum limit of Rs 20,000 per financial year on the repayment of the principal sums, which need not be out of income chargeable to tax of the year in which such repayment is made.

Interest repaid: Under section 24 of the Income Tax Act, in case of self-occupied property, deduction is allowed up to Rs 1,50,000 per annum for houses acquired or constructed with capital borrowed after March 31, 1999 as long as the acquisition or construction is completed within 3 years from the end of the year in which such loan is taken.

Due to an acute housing shortage in the country, the Reserve Bank of India is encouraging banks to lend more home loans and that too at the rock bottom rates.

In fact, the home loan growth of the banks has touched a new high see chart due to the low interest rate policy followed by the RBI.

Story continues below this ad

If you are a home loan borrower already and paying a high interest rate anything more than 10 per cent, it8217;s time for you to visit the nearest bank branch and re-finance your loan.

And if you are the laidback type, you need not to even run after the banks officials just call them to your home and negotiate the rates. Many foreign banks are even undercutting each other by reducing the rates below the published rates. So, negotiate if you can.

Banks are also investing their time and energy in home loans as the risks are lower in home loan cases.