l I prepaid Rs 8 lakh for my home loan in October. HDFC had made me pay Rs 2000 as simple interest on prepayments. I also paid the regular EMI for October. What is the extra that HDFC charged from me for the prepayment?
– Arun Joshi
There is no charge for prepayment. The Rs 2,000 should not have been charged. As for the EMI, you need to continue paying regularly. Of this EMI, the interest portion will be smaller (as you have prepaid part principal) and the principal portion will be larger. If you continue paying the same EMI, your loan will get extinguished early. The charge of Rs 2,000 may possibly be for a reduction in margin and subsequent rate reduction. Please check with HDFC.
l I have 30 months left for completing my home loan. The principal outstanding is around Rs Rs 9 lakh now and the bank is charging 9.1% interest. I have some spare cash. Is it advisable to prepay the full amount now?
Presuming you are in the highest tax bracket, you save about Rs 33,000 income tax across these 30 months under Section 24B (I am also assuming Section 80C is covered by your EPF and insurance premium). You pay interest to the tune of just above Rs 1 lakh to the bank in this period. Therefore, your net interest outflow, because of the loan, is about Rs 77,000. This works out to a net cost of 6.5% on this Rs 9 lakh loan. Now comes the decision-making part. If you can invest the spare Rs 9 lakh in an instrument for 2.5 years, earning an interest of more than 6.5% in a relatively safe investment, without taking high risk, you should go for it and not prepay. However, if you are near retirement, and would like to get loan-free, then paying off the loan is better.
l I want to gift a car to my daughter for her wedding. I have retired and have pension and rent as income. My daughter does not have any income. Can I take a bank loan to buy the car and register the car in my daughter’s name?
Theoretically, it is possible. However, the bank financing the car will foresee a problem if you stop paying the EMI and they need to take possession of the car (which on paper will be in your daughter’s name). The bank may, therefore, insist on adding your daughter as a co-owner to the loan. In case you avail financing from the car dealer, the paperwork may be simpler.