How to Save Maximum on Home Loan Repayments?

Finding an affordable Home Loan is the first step to realising a dream of buying your own house. With the rising competition in the finance industry and push from the government for affordable housing, the interest rates for Home Loans have reduced significantly, and the lending institutions have also relaxed eligibility criteria considerably.

With the maximum repayment tenor of up to 30 years, as available for an SBI Home Loan, the Home Loan EMIs are a major financial commitment which you will serve for a major part of your working life.

Moreover, a major chunk of your monthly income will be going towards Home Loan EMIs. Therefore, you need to plan your Home Loan repayments in such a way that it does not affect your fixed monthly expenses. This can be made possible by maximizing the amount that you can save on your Home Loan repayments. Yes, there are various options available to help you save a significant amount of money on your Home Loan repayments. Though this requires proper planning and execution from your side.

Following are some useful ways to help you save money on your Home Loan repayments:

Tax Deduction on Interest Repayment

Your Home Loan EMI comprises of two components, i.e., principal and interest. As per the Sec 24 (B) of the Income Tax Act 1961, you can claim a deduction of up to Rs. 2 Lakh on interest paid against your Home Loan in a year. This deduction is available for a self-occupied house as well as a rented property. This deduction can be claimed on an accrual basis, i.e., you can claim the deduction even if you have not paid the interest amount in a given year but had paid excess interest in the previous year. So, make sure to get the interest certificate from your Home Loan lender to claim the deduction of up to Rs. 2 Lakh against the interest paid. For instance, if your income falls in the 30% taxation category, you can save up to Rs. 60,000/- towards your Income Tax liability with this deduction.

Tax Deduction on Principal Repayment

Similarly, you can also claim a deduction against the principal component of your Home Loan. Albeit, the maximum deduction available for principal repayment is Rs. 1.50 Lakh under Sec 80C of the Income Tax Act, 1961. The charges paid for stamp duty, and registration can also be included to calculate the deduction amount. This limit of 1.50 Lakh is the maximum relief available under Sec 80C, i.e., deduction against all investments and saving schemes available under Sec 80C are subject to this total limit. Though you must not liquidate the property within 5 years of purchase, otherwise the tax benefits you have claimed will be added to your income in the next year.

Additional deduction on interest

To realise the goal of affordable housing, the finance minister announced an additional deduction for Home Loan interest payments of up to Rs. 1.50 Lakh. This deduction is over and above the deduction of Rs. 2 Lakh available under Sec 24(B), taking the maximum deduction available to Rs. 3.50 Lakh. Though, this deduction is available only for Home Loans taken till 31^st March 2020 and for residential properties with a value of up to Rs. 45 Lakh maximum. Over a repayment tenor of 15 years, this additional deduction will offer benefits of Rs. 7 Lakh.

Go for Joint Home Loan

If you and your spouse, or any other co-applicant, are working and pay Income Tax, then you must go for a Joint Home Loan. Herein, both or all the co-owners who are co-applicants in the Home Loan will be able to claim a deduction of Rs. 2 Lakh under Sec 24(B) and Rs. 1.50 Lakh under Sec 80C of the Income Tax Act 1961. This decision can help your family save a significant sum of money on the Home Loan repayments as you can claim the deduction for each co-applicant. To claim this deduction, the construction of the said property must be completed.

Repo-rate linked home loan

 Recently, RBI has announced that Home Loan interest rates will be linked directly to external benchmarks. As a result, many banks have started offered Repo Rate linked Home Loans. You can also transfer your existing Home Loan to a repo rate linked Home Loan and save on your interest cost. But the amount that you will be saving depends on the prevailing repo rate and the mark-up charged by the bank. For instance, SBI Home Loan Interest Rates now start effectively from 8.20% per annum as the bank charges a 2.65% mark-up over the repo rate.

Step-up your EMIs

Your lender will prepare the Home Loan repayment schedule to determine the EMIs you have to pay for the entire repayment tenor as per your present income. But it is also a fact that your income will steadily increase with time, leaving you with additional funds at your disposal. Instead of using this amount for discretionary expenses, you can use it to repay your Home Loan quickly. You can opt for step-up EMIs while availing the Home Loan, which basically means that your EMIs will increase according to your income. Not only will this allow you to repay your loan quickly but also help save money on the interest cost.

Prepayment of Home Loan

Most financial institutions allow you to make pre-payment against your Home Loan without incurring any foreclosure or penal charges. So, if you have got spare funds or unexpected gains from somewhere, use that money to pre-pay your Home Loan amount. This will help you repay the Home Loan quickly as well as save money on your interest expenses. For instance, if you decide to foreclose your SBI Home Loan, you need not pay any penal charges.

With so many opportunities available to save money on your Home Loan repayments, you can now realise your dream of becoming a homeowner without stretching your personal finances.