[Engine_Roars]

With new tax regime in picture, is it now advisable to let the home loan continue for years, if you have spare cash? I know one point of view which says, you can earn more than the interest that you will pay for home loan however the way markets have behaved, it has wiped out all the profit that I had earned in last 3-4 years, I was wondering, if I actually use the money to clear my home loan, I have brought it down to 14 years from 25 years so far.

[PearlJam]

Originally Posted by Engine_Roars

With new tax regime in picture, is it now advisable to let the home loan continue for years, if you have spare cash? I know one point of view which says, you can earn more than the interest that you will pay for home loan however the way markets have behaved, it has wiped out all the profit that I had earned in last 3-4 years, I was wondering, if I actually use the money to clear my home loan, I have brought it down to 14 years from 25 years so far.

As with most of the finance related questions, there's no straight answer to this. It depends on your risk appetite, your current financial position, current and future commitments, what your expected returns on your savings are, how quickly you mentally want to close out your loan, etc.

This is my personal opinion: Current home loan interest rates are hovering around 7.9%, which I think is extremely low. Nowhere else can you get to borrow at this rate. I believe that I can easily get a ROI of more than 7.9% by investing in quality equity, averaged over a few years horizon. Nobody can predict how markets are going to perform in the future, but we do have a lot of data about returns in the past.

[Aviator_guy]

One of my friends is planning to a buy a villa plot in a gated community. This is for long term investment and no plan for construction. It will be partially self and partially loan funded. Due to budget constraints, he is planning to buy jointly with his co-brother.

Need suggestions / feedback on the following scenarios

There are two types of loan options. First is plot loan which offers competitive rates similar to home loan. But there are couple of things to consider - banks only grant loan to blood relatives or spouses. So my friend and his co-brother have to add spouses also in the loan application as joint owners. It would mean 4 owners for the plot. I am assuming that as long as the owners have good understanding among themselves and clean paperwork, it should not be hurdle to own this property from their perspective. However, is there any flip side to having 4 owners on a property, say during resale in future from buyer's perspective? Does it affect the demand or the property value in anyway?

Also, as per the bank TnC, if there is no construction on the land after three years, interest rates would go up by 2%. Although, the bank officials mentioned that this condition is only on paper and is not enforced in reality. Don't know how far this is true. Would like to know from folks who have taken long term plot loan and if what bank officials are claiming is true or not?

Other loan option is top up loan on the current home loan. Both of them have running home loan and can avail top up. Positive thing is that they can each fund their own portion and need not add spouses in plot ownership. Also, there is no construction requirement so it is cleaner loan. However, interest rate is about 1 % higher than plot loan. This means taking some financial hit over long term due to higher interest.

Would love to hear thoughts from fellow members. Which path makes more sense technically/financially and lesser complexity in future? Any other things to keep in mind in this scenario of multiple owners.

[ajmat]

Originally Posted by Aviator_guy

Also, as per the bank TnC, if there is no construction on the land after three years, interest rates would go up by 2%. Although, the bank officials mentioned that this condition is only on paper and is not enforced in reality. Don't know how far this is true. Would like to know from folks who have taken long term plot loan and if what bank officials are claiming is true or not?
.

I took a similar loan from Standard Chartered. The understanding was that I would build within 3 years. There was no clause for an interest rate hike, and the interest rate was fixed. For other reasons, I never got to construct. I did get a letter from the bank, but no intent for any action. My accountant suggested that we hold on for further communication, which never came.

I later foreclosed the loan when I could

[bblost]

Originally Posted by Aviator_guy

Due to budget constraints, he is planning to buy jointly with his co-brother.

This is never a good idea.

Brothers from the same parents end up with bitter animosity when things go bad. These are co-brothers.

Two couples in the agreement.
If either of them go for a divorce due to any reason and it becomes bitter, everyone suffers.

After a couple of years, one couple may need the money, the other feels that they should hold on a little longer for more appreciation..

Just watch any old family drama to enjoy these fights. These are very real problems when you mix money and relatives.

I would strongly advise against adding drama into their lives.

[Aviator_guy]

Originally Posted by bblost

This is never a good idea.

Brothers from the same parents end up with bitter animosity when things go bad. These are co-brothers.

Two couples in the agreement.

I hear you and this is the first thing which came to my mind as well. I believe there is understanding among themselves so have to leave it at that.

Originally Posted by ajmat

I took a similar loan from Standard Chartered. The understanding was that I would build within 3 years. There was no clause for an interest rate hike, and the interest rate was fixed. For other reasons, I never got to construct. I did get a letter from the bank, but no intent for any action. My accountant suggested that we hold on for further communication, which never came.

I later foreclosed the loan when I could

Good to know. By the way, what was in the bank communication you received? Did they ask you for construction related info? The worry is that the sales guys would paint a rosy picture now but there is no guarantee that no action would be taken after three years. Technically they are asking to sign on the TnC right now so customer won't have any option other than to comply or foreclose if bank decides to enforce.

[ajmat]

Originally Posted by Aviator_guy

Good to know. By the way, what was in the bank communication you received? Did they ask you for construction related info? The worry is that the sales guys would paint a rosy picture now but there is no guarantee that no action would be taken after three years. Technically they are asking to sign on the TnC right now so customer won't have any option other than to comply or foreclose if bank decides to enforce.

They sent a note observing that no construction had started. Nothing else after that

[speed79]

Originally Posted by Aviator_guy

Also, as per the bank TnC, if there is no construction on the land after three years, interest rates would go up by 2%. Although, the bank officials mentioned that this condition is only on paper and is not enforced in reality. Don't know how far this is true. Would like to know from folks who have taken long term plot loan and if what bank officials are claiming is true or not?

One of my colleagues had taken plot loan from SBI. The rate of interest was same as for home loan, but there was condition to either sell the plot within 2 years or to start construction in 2 years. He did not sell it off or did not start construction. After 3 years or so his loan rate was increased to commercial rate of 14% and he was made to pay 4L as interest arrear for the lapsed period.

[Way2Jimny]

Originally Posted by Engine_Roars

I know one point of view which says, you can earn more than the interest that you will pay for home loan

If I were you, I’d just close the home loan at the first opportunity. The difference between the home loan interest and what you might earn from the market isn’t really worth the risk, time and effort as you have already experienced.
I assume you’re paying around 8.5% interest, and that is the money you could simply save by clearing the loan early. Once the loan is out of the way, you can just redirect that EMI into SIPs. Much simpler and less stressful.

[Jaguar]

Originally Posted by Engine_Roars

With new tax regime in picture, is it now advisable to let the home loan continue for years, if you have spare cash? I know one point of view which says, you can earn more than the interest that you will pay for home loan however the way markets have behaved, it has wiped out all the profit that I had earned in last 3-4 years, I was wondering, if I actually use the money to clear my home loan, I have brought it down to 14 years from 25 years so far.

Is the spare cash invested in the market or liquid? If invested, it doesn't make sense to take it out and close the loan.

Originally Posted by Aviator_guy

I believe there is understanding among themselves so have to leave it at that.

My friend and his brother own a property together. There is no animosity or issue between them but there is a difference in their financial viewpoints. Now they are planning for some upgrades and while my friend wants/can pay for it he is forced to go for a top-up loan because his brother wants to. There is understanding between the two and the amount is not big, but there can be a point where one feels burdened and things start going south.

[ashis89]

Originally Posted by Engine_Roars

With new tax regime in picture, is it now advisable to let the home loan continue for years, if you have spare cash? I know one point of view which says, you can earn more than the interest that you will pay for home loan however the way markets have behaved, it has wiped out all the profit that I had earned in last 3-4 years, I was wondering, if I actually use the money to clear my home loan, I have brought it down to 14 years from 25 years so far.

In the new tax regime, a Home loan can give tax relief only if the mortgaged property is rented out. The annual repayments can be adjusted against your rental income. If the property is self occupied then it makes sense to close the loan as soon as one can afford to.

[Aviator_guy]

Originally Posted by ashis89

In the new tax regime, a Home loan can give tax relief only if the mortgaged property is rented out. The annual repayments can be adjusted against your rental income. If the property is self occupied then it makes sense to close the loan as soon as one can afford to.

Apart from other things already discussed, another thing to keep in mind is the liquidity factor.

Let's say you have lump sump and want to decide whether to repay home loan or invest somewhere else. If you repay the loan, the money is gone from your hand permanently. The money, which otherwise, was available to you at one of the cheapest rate of interest in the market. If, for any reason you need that money in future, it's not there or you again need to look for other ways to raise/borrow that money.

Now consider the other scenario. You don't close the home loan but invest the lump sump in other investment class, say equity market or gold or debt fund (asset class which can be liquidated on short notice when needed). This way the money is still available on short notice, should you or family need it and you don't need to take expensive loan to raise this money. If.you don't need it then it's getting appreciated anyway.

[ashis89]

Originally Posted by Aviator_guy

Apart from other things already discussed, another thing to keep in mind is the liquidity factor.

Well, there’s a different side of this coin too. After making bulk payments, my monthly outflow would decrease and my disposable income would increase. I could spend this extra or save/invest in whatever way I like. After a point, this extra savings would fix my liquidity situation. Two different school of thoughts and I could always balance a middle ground (repay some retain some).

[Aviator_guy]

Originally Posted by Aviator_guy

Also, as per the bank TnC, if there is no construction on the land after three years, interest rates would go up by 2%. Although, the bank officials mentioned that this condition is only on paper and is not enforced in reality. Don't know how far this is true. Would like to know from folks who have taken long term plot loan and if what bank officials are claiming is true or not?

Adding another query. Has anyone taken hdfc plot loan and aware of exact clause about construction? There are mixed inputs from various sources including hdfc staff and info on hdfc site. Would like to know if it is true that interest rate would be hiked if there is no construction on the plot after a certain period? If yes, what is the exact TnC and how much does the rates go up? Has it been enforced by hdfc for anyone ?

Originally Posted by Aviator_guy

Other loan option is top up loan on the current home loan. Both of them have running home loan and can avail top up. Positive thing is that they can each fund their own portion and need not add spouses in plot ownership. Also, there is no construction requirement so it is cleaner loan. However, interest rate is about 1 % higher than plot loan. This means taking some financial hit over long term due to higher interest.

Would love to hear thoughts from fellow members. Which path makes more sense technically/financially and lesser complexity in future? Any other things to keep in mind in this scenario of multiple owners.

Adding another query. Has anyone taken top up loan on existing home loan in hdfc for buying plot? Is it allowed to buy plot using top up loan ? Also, can the disbursement be staggered over couple of years as per the need?

[Linuskm]

Originally Posted by whitewing

In Karnataka, agricuture land needs the RTC (called as pahani patra) while Khata is a book entry in the corporation/municipality recording the land and builltup area that serves as a basis for calculation of property taxes. The BBMP(Bangalore governing body) even now has a physical ledger (hand written) that is the basis for their tax revenues. It is only recently they have started to digitizing and reconciling the entries.

https://www.thehindu.com/news/cities...le69456368.ece

Hope this helps...