Buying flats in Kolkata is a cherished dream for many residents of our city of joy! The current pandemic has wreaked havoc on the world economy. The unprecedented crisis has left people with financial liabilities at a loss for what to do. Many people have lost their jobs or taken a cut in their salary. Some who were counting on an incoming increment or bonus have been asked to wait longer.
Financial burdens can trigger massive stress and paying off any outstanding Equated Monthly Instalments (EMIs) can seem like an impossible task for many. Being a homeowner and having monthly installments to pay is one such financial burden. If you have recently purchased a flat in Kolkata, you might be familiar with this scenario. While the idea of buying flats in Kolkata might have seemed like a good idea at the time, the pandemic has set many people back.
Tips to manage home loan EMI’s
However, there are still some resources available. We realize that buying flats in Kolkata would have required a lot of painstaking research and decision making and now things can seem overwhelming. Here we outline a few tips and tricks that will help you manage your home loan EMIs effectively. Give the same amount of due diligence to the below-mentioned points that you gave to deciding which flat at Kolkata to buy, and you should fare better.
Home Loan Moratoriums
If you have been reading the news, you might have heard about the moratorium on loans announced by the Reserve Bank of India (RBI) in August 2020. In a loan restructuring circular issued by the RBI, the central bank asked banks to announce a moratorium on loan repayments for a maximum of 24 months. This applies to various kinds of loans like retail loans, education loans, automobile loans, personal loans, and home loans. Many banks, including some of the biggest banks in the country like SBI, have announced a moratorium on home loan repayments. Borrowers who took a home loan for buying flats in Kolkata can use this opportunity to reduce their existing liability.
However, one must understand the terms and conditions involved. A moratorium is not a permanent waiver of the loan. A moratorium only implies deferment of repayment, not cancelation. Your unpaid EMIs will still accrue interest which will keep getting added to the outstanding loan amount for your flat at Kolkata. Eventually, after the moratorium is lifted, you will be liable to pay the entire amount to the bank. Hence, this option will require extensive financial planning. If you are still in a position to make monthly EMI payments, it is best to continue to do so since you will not be liable to pay a large amount at a later date. However, if it is impossible for you to be able to pay your EMI installments currently, this might be an option you can consider exercising.
Balance Transfer Facility
One of the easiest steps you can take right now is transferring the balance of the home loan you took for buying flats in Kolkata to a different bank that offers a lower rate of interest. This will mean that the amount you pay monthly in the form of EMIs will reduce and you will have more room in your budget to help you navigate the financial crisis.
However, there is a catch. The bank or lender that you do choose should be one with a Marginal Cost of Funds based Lending Rate (MCLR) as this will help you lower repo rates. Before 2018, bank loans were tied to a bank’s base rate. This means that banks could decide the rates of interest-based on the internal cost of funds and could charge whatever interest they saw fit. But after 1 April 2018, all bank loans, including home loans, were linked to the MCLR. With MCLR, your rate of interest will automatically be low as it is decided by the RBI.
However, Housing Finance Companies (HFCs) and Non-Banking Finance Companies (NBFCs) do not use MCLR and can set higher interest rates. Hence, one has to be careful when selecting a lender for loan repayment on properties in Kolkata.
Under the Union Budget 2020, the central government has increased the income tax benefits one can get on their home loans. It would be wise to be aware of the tax benefits you qualify for your properties in Kolkata and make use of them.
There was already an existing exemption of Rs. 2 lakhs on home loans under Section 24 (b) of the Income Tax Act. Now, in addition to that, there is a further income tax benefit of Rs. 1.5 lakhs under Section 80 C. However, these only apply to home loans availed before 31 March 2021 and for homes with a stamp value of up to Rs. 45 lakhs.
In addition, first time home buyers who take loans under the Credit Linked Subsidy Scheme (CLSS) of the Pradhan Mantri Awas Yojana are eligible for an additional tax benefit of Rs. 50,000 under Sector 80 EEA.
If you are eligible for any of the categories according to your price of flats in Kolkata, you should be aware of the tax benefit that applies to you.
Home Loan Overdraft Facility
If you are in a serious cash crunch, you can apply for an overdraft on the home loan account that you used for buying flats in Kolkata. The overdraft facility linked to the account allows you to deposit an additional amount towards your loan over and above your EMI. This surplus is treated as pre-payment towards your loan and thereby, reduces the interest on the outstanding amount. Also, you can withdraw this extra amount whenever you require it and the interest on the outstanding loan will automatically adjust.
However, overdraft facilities attract a payment of interest since it is essentially an additional loan above the loan you took for purchasing your properties in Kolkata. So in the long run, one should carefully consider the payment of this interest or the repayment of the overdraft and see if taking the overdraft facility makes financial sense.
Withdrawal from Provident Fund
In March 2020, the Labour Ministry announced that subscribers to the Employee Provident Fund Organisation (EPFO) could withdraw a portion of their retirement savings from their EPFO account. The Ministry allowed subscribers to withdraw up to 75% of their savings or three month’s basic salary and Dearness Allowance (DA) from their PF, whichever is lower. The gazette notification also said that all requests for fund withdrawal would be processed within 3 days.
This is an excellent way to get some money if you are facing severe financial difficulties. However, a lot of careful consideration needs to be given to this option before you avail it. After all, you would be withdrawing the money from your retirement savings that are there as a safety net for your future.
The last option available to you is working with your bank to restructure the home loan you used for buying flats in Kolkata to increase its tenure. Increasing the tenure of your home loan will not only mean that you pay an EMI for more years than originally planned, but it will also mean that the overall interest due on your loan will increase. Thus, you will end up paying more to the bank in the long run. However, in the present period, your EMI burden on a monthly basis will decrease and this may offer you the temporary relief you need to ride through this pandemic period.
To restructure the loan you will have to approach your bank and request a tenure extension. But loan tenure extension is not guaranteed and will depend on your bank or lender. Also, usually, the loan maturity period is restricted till your retirement age. So depending on your age, the tenure you seek may not be available for you.
The COVID pandemic has affected millions of people adversely throughout the world. Many people’s livelihoods have been severely altered. For buying flats in Kolkata you would have probably taken a home loan from a bank. If you are someone who had structured a loan repayment plan based on certain expectations of your job and salary, which have now been changed in some way due to the pandemic, the above-mentioned ways are your best bets to still be able to make your monthly payments. With sensible planning and some tweaks to your personal budget, you should be able to manage your home loan payments for your flat at Kolkata without making any drastic compromises to your lifestyle.
You should consider giving a read to this blog “Find the Best Home Loan To Buy Your Dream House with Ease“