When a loan is taken against a property it is said to be a secured loan because it is obtained by placing the property, be it residential or commercial, as collateral with the party lending the loan amount. Most people are of the mindset that investing in real estate is a safe option as compared to other kinds of investment. However, this isn’t the case since real estate properties are not cheap.
Many a times a situation arises wherein a person has to obtain a bank loan in order to purchase the property and pay back through the medium of EMIs over a period of time. In order to aid customers to meet their various needs, financial institutions provide them with varying types of home loans such as home purchase loan, home construction loan, home improvement loans, home extension loans, etc.
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Can a home loan be taken more than once?
There are no such restrictions on the number of times a home loan can be availed by a home buyer. Though it is believed that a person cannot take more than one home loan at a time, this is not true. A person can avail of multiple home loans and also claim the necessary tax benefits which are available with it.
It is important to note that the amount of the home loan that can be availed by a person for all his properties taken together depends upon various factors such as one’s earnings, age and the ability to pay back the home loan amount. Further, he/she is also entitled to certain tax benefits depending upon the interest payable on the money borrowed for the purposes of purchasing, constructing, renovating or repairing the housing property.
A person though can take home loans from numerous banks; it is advisable to stick to only one bank but then again, there is no fixed limit for it. The person taking the home loan should be financial strong or be in the financial capacity to pay back all the loans that he has taken.
The first thing that banks and other financial institutions or any lending institute look for is the source of income through which a person intends to repay the home loan amount along with the interest(s) and other fees. If a person has sufficient means to pay back the home loan amount as well as the interest and other fees, then a person can obtain as many home loans as he wishes.
Further, it must be noted that the first two housing loans taken under the name of a person are covered as a Retail loan but from the third loan onwards, it is treated as a Commercial loan. The only difference between the two loans is the rate of interest that is charged on loans. Retail loans are provided at a lesser interest rate as compared to commercial loans.
As far as CIBIL is concerned – the score so obtained by one is used to check the creditworthiness of the borrower which at all times should be high. The score reflects the number of loans taken by a person, the number of loans repaid, the number of loans yet to be repaid, and the frequency of repayment i.e. overdue or if at any time the person has failed to repay the loan amount through EMI on time.
Apart from this, it also includes the inquiries made by the borrower for a loan. One must keep in mind that every time an inquiry is made, the score falls by a few points. The CIBIL score is also a factor that is taken into consideration while deciding the rate of interest that is to be charged on the borrower. A score of 700+ is desirable however it again depends on bank to bank or financial institution.
Can tax benefits be availed on a second home?
A person can own as many properties as he wishes to and the government does not impose any such restrictions with respect to the number of properties that a person can own. Although deductions as mentioned in Sec. 80C on the principal amount of a loan may not be available in the case of a second house, the borrower does enjoy tax benefits on the interest component.
Earlier, the interest was said to be fully deductible in cases of rented or deemed to be rented houses i.e. if the interest payable on the loan amount obtained for purchasing the second house was higher in value than the rent received, the remaining amount could be easily adjusted against other income. However, a limit of 2 Lakh has now been imposed on such adjustments. The remaining amount, if any, is carried forward for 8 successive years which is to be adjusted against income from the housing property only and under no other head.
Tax benefit on interest payment
A person can claim deductions on the payment of the interest amount on a loan taken for the purpose of purchase, construction, repair, or renovation of any property. Such a deduction can be availed under Sec. 24(1) of the Income Tax Act and is made available on any commercial or residential property owned by the borrower.
The deduction is made available even when the money has been borrowed from a housing company or from friends and relatives. Yet, it is important to note that the deduction can be claimed only from the year in which the possession of the property is handed over to the person.
Therefore, if the property is still under construction, the interest payable during the construction period cannot be claimed before the completion of construction of the property. However, it can be reduced or paid off with regular installments and claimed in five equal installments, beginning from the year in which the construction is completed and the possession of the house is given to the person.
Tax benefit on repayment of the principal amount
The income tax law in India not only allows a person to claim deductions of interest but also allows him/her to rebate for repayment of the principal amount under certain circumstances. According to Sec. 80C an individual or a Hindu Undivided Family can claim up to 1.5 lakh for the repayment of the principal amount of the housing loan taken from specified institutions for a residential housing property.
Such a deduction is available along with other eligible items such as provident fund contribution, life insurance premium, tuition fees, PPF contribution, NSC, ELSS, etc. It is also be obtained for any amount paid for registration and stamp duty of a residential house.
However, the law doesn’t state any restrictions on the number of houses for which such a deduction can be claimed by a person. For this purpose, it does not differentiate between a self-acquired property or a rented-out property. Therefore, a person can avail of home loans for more than one property but the total amount of deduction is restricted to 1.5 lakhs when the repayment of the principal amount of all the home loans is taken together.
Such a deduction too can be claimed only after the possession of the property is with the borrower. But, when a person starts to repay the loan amount before possession then no such tax benefit is avail to him/her. It is important to bear in mind that repayment of a loan amount taken from friends and relatives does not attract such a deduction.
Further, if the residential house is sold or transferred within a period of five years from the end of the year in which the home loan was granted, no deductions are allowed in the year of transfer. Lastly, the deductions claimed in the earlier years are reversed and taxed in the year of such transfer.
Can multiple loans be taken in the same house?
No, a person cannot apply for multiple home loans on the same house. This is because of the formation of CERSAI (Central Registry of Securitization Asset Reconstruction and Security Interest of India). Thus, once a loan has been sanctioned by the nationalized banks, the central registry contains all the details with respect to the loan amount and the property. If an individual tries to apply for another loan on the same property, then such a loan will not be granted however, the option of obtaining a balance transfer is possible.
The purpose of the central registry is to keep records of the property on which loan has already been granted. This is done in order to prevent fraudulent transactions that may arise out of the same asset (property) being mortgaged to different/multiple lenders. The CERSAI maintains a history of all the charges that were created over the property.