Do lenders charge extra for loan prepayment?
SEBI-registered financial adviser Harsh Roongta answers all your questions related to home loans and taxes related to propertyreal estate Updated: Jan 06, 2016 13:08 IST
I bought a property for Rs 45 lakh and wish to sell it for Rs 60 lakh after prepaying the loan taken against it. Is it possible to not give the pre-payment charge? Also, I will be earning Rs15 lakh on the sale of the property. Do I need to pay tax on it or is it tax exempt?
- Surjit Shah
No prepayment charges are payable if the loan taken for the said property is on a floating rate of interest. If the loan is from a housing finance company, no pre-payment charges are payable in your case even if it is on a fixed rate of interest as you will be repaying it from your own sources. The gain of Rs15 lakh will be taxable depending on the period for which you have held the property. In case you are selling the property within 36 months from its purchase date, the profit will be taxed at normal rates. However, if the same is being sold after holding it for over 36 months, it is taxable at the rate of 20% after giving the benefit of indexation.
I am planning to take a housing loan. I was told to opt for lower EMIs and prepay at least once a year to reduce the loan amount (as the prepayment is towards principal). Is this correct?
- Manju Mehta
Yes, the amount you prepay is adjusted against your principal outstanding. So each prepayment will reduce your loan tenure by default. However, if you want to retain your loan tenure and reduce the EMI, you need to discuss with your lender.
Please tell me how to determine notional value of a second house property for income tax purposes?
- Latika Sharma
The notional rent is the value at which the property in question is reasonably expected to be let out. You should check out the rates at which similar properties in the area are being leased out and use that as the basis for determining the notional rent value.
I have taken a home loan from a housing finance company. I want to transfer it to a nationalised bank. At the time of signing the agreement, there was a clause for prepayment charges in case the loan amount was prepaid. Now as per the RBI circular no prepayment charges can be levied in case the loan is closed before the period for which it is taken. Will prepayment charges be waived off in this case? What happens in case the financial institution does not follow the RBI guidelines?
- Sarnam Samanta
The financial institution in your case is governed by National Housing Bank (that regulates housing finance companies and not by RBI). NHB has issued a circular banning levy of prepayment charge on floating rate loans irrespective of the source of prepayment. This includes even the balance transferred to another lender. This is applicable to all loans, new as well as existing, from housing finance companies. So, even if the clause in your agreement mentions the foreclosure penalty, it will not apply to you. The financial institution can levy a prepayment charge on the outstanding loan amount that you want to transfer to any other lender and that too if it on a fixed rate of interest.
Have a home loan problem? Email HT@harshroongta.com