Now more expensive Home and car loans

The catalyst of all this is the Reserve Bank of India's decision to raise key policy rates by 50 basis points. This is its 11th successive rate hike in 15 months.

Home loan buyers have already seen interest rates rise by 1.5-2 percentage points within a year from 9.5% to around 11.5%. If the rate is increased further to 12%, the EMI on a 20-year loan will rise from Rs 934 (at 9.5%) to Rs 1,101 per lakh. On a Rs 50 lakh loan, the monthly instalments will increase by Rs 8,465 from Rs 46,585 to Rs 55,050. This is equivalent to a staggering 18% increase.

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Home loan benefits in new Tax System

Home loan benefits in new Tax System

The revised discussion paper on the Direct Tax Code (DTC) has proposed to continue with the existing system of deducting interest payment (up to Rs 1.5 lakh) against home loan from total income before calculating the tax liability.

The discussion paper released on August 2009 had proposed to do away with all the exemptions, including the tax benefit on interest payment against home loan. This, if implemented, could discourage home buyers.

However, the department had also increased the exemption limit to Rs 3 lakh from the present level of Rs 1.1 lakh against investments in select instruments like PPF, pension funds and life insurance schemes. The Rs 1.5 lakh interest benefit against home loan will be included under 3 lakh ceiling.

In the DTC, the government had earlier argued that as the exemption limit against investments has been increased, taxpayers will not be affected if benefit on interest payment against home loan is withdrawn. However, the withdrawal attracted a lot of criticism. And the government finally decided to get back to the earlier system.

Even if the interest payment against home loan is not treated as a separate category and will be the part of the exemption limit of Rs 3 lakh, taxpayers will still benefit. According to the original DTC proposal, interest payment against home loan was not allowed for deduction from the income. As many middle-income taxpayers will find it difficult to exhaust the 3 lakh ceiling,inclusion of interest payment of Rs 1.5 lakh in the total exemption limit will be beneficial.

According to experts, government should continue with the deduction against interest payment on home loan as a separate category, considering contribution of the housing sector to the gross domestic product.

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Loan Against Property by HDFC

HDFC has said it will give loans only up to 50% of the property’s market value, The loan value can go up to 60% if the borrower is an existing home loan customer. HDFC’s loan against property is available at an interest rate of 11.25% for loans up to Rs 1 crore and 11.00% for loans above Rs 1 crore. The loan term can be up to 15 years for both residential properties and non-residential properties.

Loans

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Home loan demand will grow up in 2010

The growth in housing loans was Rs 14,668 crore in August 2009, against Rs 29,872 crore in August 2008. As the economy is on the recovery track home loan demand will eexpected to grow. Some banks are till reducing their home loan rate to capture this opportunity like Bank of India have fixed rate for home loans 8 per cent upto Rs 30 lakhs and 8.25 per cent for loans above Rs 30-lakh. According to Macroeconomic and Monetary Developments the Reserve Bank of India's, Q2 Review 2009-10, as on August 28, 2009, the year-on-year growth in home loans was 5.4 per cent, against 12.4 per cent as on August 29, 2008.

In 2009-10 According to Managing Director, HDFC Ltd. the growth in disbursal's has been about 26 per cent for HDFC.

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