Skip to main content

Use pre-payment penalty option to minimize loan burden

Tax Saving Mutual Funds Online

Current open Infra Bond Application form

 

 

TWO leading banks -State Bank of India (SBI) and ICICI Bank -have waived the pre-payment penalty on home loans.


While SBI has waived off pre-payment penalty for new and old customers, fixed rate loans or floating rate loans, whether the prepayment is paid from your own source or from a borrowed source, ICICI Bank, on the other hand, has waived pre-payment penalty for floating rate loans.

If your bank has not announced removal of prepayment penalty, don't worry, because it is just a matter of time before banks do so. Regulatory pressure and market competition will force more banks to waive off pre-payment penalty on home loans.

During its monetary policy on October 25, Reserve Bank of India (RBI) governor D Subbarao told Financial Chronicle, Should banks not move in the right direction (by waiving prepayment penalty), then we will do something assertive rather than cajoling them.

There is proposal to waive it in a floating rate regime, because, if the borrower had borrowed on a floating rate and if rates went down afterwards, that borrower was not getting the benefit of decline in interest rates. The borrower also could not switch to another bank because of the deterrence of pre-payment penalty.

The regulator for housing finance companies, the National Housing Board (NHB), has already asked housing finance companies (HFC) to charge uniform interest rate to old and new borrowers and has also waived off the pre-payment penalty on floating rate loans if borrowers pre-pay through any source. For home loans that are on fixed interest rate, HFCs cannot charge a pre-payment penalty if the loan is pre-closed out of one's own sources.

At present, banks charge 2-4 per cent of the loan outstanding as pre-payment charges from home loan customers.

With the RBI increasing key policy rates by 350 basis points since March 2010, home loans rates on an average have risen by 250300 basis points (3 per cent) for floating rate customers. Banks, however, reduce interest rates for new customers.


Pre-paying your loan: If you have a home loan and if your bank announces the waiver of pre-payment penalty, try and make the most of this opportunity, because this is the best option to get out of your home loan fast. Saving on the net interest is the significant advantage of pre-paying a home loan, other than the fact that you will retain the complete ownership of the house earlier than planned.


The longer the tenure, the more the interest repaid, hence, it is best to repay your home loan in the shortest loan tenure possible provided your income allows you to do so.

Experts suggest that those who have surplus funds that are not giving good returns, they should use these funds to pre-pay their loans.


Consider your tax benefits also on your home loan before pre-paying: Under Section 80 C of the Income Tax Act, a borrower can get a tax deduction of Rs 1,00,000 every year for the repayment of principal.

He can also claim deduction of up to Rs 1,50,000 per annum under Section 24(b) for the interest paid on the home loan.

Do a cost-benefit analysis taking into account the tax deductions before prepaying.

If a person is in a higher tax bracket (30 per cent), his home loan rate of interest is 11 per cent and his outstanding principal is up to Rs 14,00,000, then his effective rate of interest works out to be 7.7 per cent. Such a person should not pre-pay. However, he should consider pre-paying the outstanding amount Rs 14,00,000 because he does not get tax benefit.

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. HDFC TaxSaver
  2. ICICI Prudential Tax Plan
  3. DSP BlackRock Tax Saver Fund
  4. Birla Sun Life Tax Relief '96
  5. Reliance Tax Saver (ELSS) Fund
  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

---------------------------------------------

Application form for Tax Saving Infrastructure Bond and more information

Current open Infra Bond Application form

Submit filled up application Collection canter near you

Popular posts from this blog

ICICI Prudential Dynamic Plan Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential Dynamic Plan             Invest Online This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.     For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call     Leave a missed Call on 94 8300 8300   Leave your comment with mail ID and we will ...
Read more

Financial Planner - Do Integrity & Dependability Check

How does one can find value proposition when it comes to financial planning, which is a new area? There is nothing to benchmark it with. So, how does one figure what is the right fee to pay? Look at what you want. You probably want to hire a financial planner to get a blueprint for your life ahead and want to know how to achieve your goals. For creating a tailor-made financial plan, our experience is that it takes 25-30 man-hours in all. Taking an average of Rs 500 per hour for hiring the services of a qualified financial planner like one who has a CFP(CM) certificate, the fee would come to Rs 12,500 to Rs 15,000. But the per-hour rate can be higher or lower depending on the process adopted, the experience and expertise of the planner, etc. That's how planners arrive at their fee. Now, is that value for money? For that you need to find out what benefits you would derive by engaging them. The financial plan will give you clarity, direction and pathway to achieve your goals. Th...
Read more

About CRISIL IPO Grading

CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy / sell or hold the graded instrument, or a comm...
Read more

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...
Read more

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now