Exhaust all other options before selling a house

I had taken a home loan for Rs 15.75 lakh in December 2007 for 10.75 per cent floating rate with an EMI of Rs 14,000 a month. For the last 2 years my EMI has been revised to Rs 16,154 at 12.75 per cent as of July 2011. The loan's term has gone up to 340 months from 270 months. I cannot afford a pre-payment to reduce my principal as I quit my job in January 2010 and am living on my savings for the last year and a half. I have somehow managed to pay my loan till date. I had registered my house for Rs 18 lakh at the time of my purchase in December 2007. The current value as per government valuation would be Rs 27 lakh to Rs 30 lakh.

I can pay the EMI. But I need to know if it is better to continue with the loan or sell the house? If I sell how should I save tax on capital gains? I plan to buy a plot with the money.

L.A. Vignesh

Unlike other assets, immovable property such as a house has more emotional value. Also it is not easy to find a replacement later in the same locality. As you have not clarified if you are living in the house you purchased, we presume you are. No home loan lender will offer cooling period for your repayment. Given your tight financial situation there are few options. Check if you can let out this house and move to a house with lower rent and if you can manage the EMI payment with the differential amount. If you are sure of getting a job in the near future, pledge or sell gold or insurance policies and raise a loan or borrow from friends till you get a job.

If are not open to both the options then selling your house is the only way out. If you sell your property the difference between your purchase and sale price (with deduction allowed for selling expenses) will be your capital gains.

If you sell your house for say Rs 30 lakh in financial year 2011-12, indexed cost of your original investment will be Rs 25.6 lakh. This means your net effective capital gain will be Rs 3.4 lakh. If you purchase plot for Rs 3.4 lakh, your capital gain will be exempt from tax.

I have taken a home loan of Rs 7 lakh from Repco Bank and my EMI is Rs 8,775 for 144 months. The loan was sanctioned on March 20, 2010. After finishing the house my first EMI started on March 10, 2011. I am giving post-dated cheques dated 10th for every month's instalment. For the past three months I am being charged a penalty of Rs 11 every month. My account statement shows that my cheque has been cleared 5 to 10 days after the due date every month. Earlier, cheques used to be cleared a day earlier. I did not get a satisfactory reply from the bank. What are these penalties?

Also, I have paid 7 EMIs till date, but the statement shows 150 EMI are remaining. My current rate of interest is 11.85 per cent. How is the EMI calculated? The bank official says he cannot furnish the formula and asked me to had him a letter addressed to the head office. Is this the normal procedure to get an EMI calculations?

— Venkatesh Chinnasamy

Banks generally have a software that they use to calculate the periods. We are not sure if this is the case with your bank.

You have availed loan at 10.8 per cent. For an increase of one per cent in the interest rate your loan tenure will go up by 13 months (157 months). Such an increase is possible if you availed a floating rate home loan. As you have already paid EMIs for seven months the balance tenure in your case is 150.

Regarding your penalty, it is best that you talk to your branch manager. If there is no favourable reply escalate the issue to his senior officials and nodal officer before taking up the issue with the bank ombudsman.

I have taken a home loan (Rs 7.5 lakh) on February 2011 from HDFC for 20 years and my EMI was Rs 6,991 at an interest rate of 9.5 per cent. But after six months, in August, I asked my lender to reduce the term to 15 years. So my EMI was revised to Rs 8,460 at 11 per cent interest. Now HDFC is telling me that my loan will be over by August 2026. My contention is that as I have paid from February it should over by February 2026. Am I right or wrong?

Manish Kumar

Your calculation is not right. You took a loan of Rs 7.5 lakh in February. Till August you would have paid principal amount (out of the total EMI) of Rs 6,447. When you have reset the loan at 15 years, your outstanding should have been Rs 7.43 lakh. For an EMI of Rs 8,460 your tenure will be 179.5 months. The loan term will be over only in August 2026.

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