A loan against property is a secured loan which is obtained by keeping the property (residential/commercial) as collateral with the lender of the loan amount. Many people are of the opinion of investing into real estate, as it is considered to be a safer option as compared to other investments. However, real estate property is not cheap. There may be a situation where the person may have to obtain a bank loan in order to buy the property and pay back EMIs over a period of time.
To help customers meet their various different needs, financial institutions offer different types of home loans to people. Home purchase loans, home construction loans, home improvement loans, home extension loans, etc., are a few loans that are provided by financial institutions.
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Can we take a home loan twice?
There is no restriction on the number of home loans that a home buyer can take. There exists a belief in society that a person cannot take more than one home loan at a time, however, it is not so. A person obtaining multiple home loans can also claim the necessary tax benefits which are available with the multiple home loans.
However, the amount of home loan available to you for all the properties taken together, shall depend on various factors like your earnings, age, and your ability to service the loan. You are entitled to certain tax benefits, with respect to the interest paid on money borrowed, for buying, constructing, renovating, or repairing a house property.
A person can certainly take loans from any number of banks but it would be advisable to stick with just one bank but again there is no limit set for this either. The financials of a person should be able to back the number of loans that a person has obtained. Banks or any lending institute looks for sources of income that a person would use to repay the loan amount including all the interest and other fees. If the person has sufficient means to pay back the principal amount as well as the interest and other fees, then a person can take as many home loans as he would like to.
Also, it is to be noted that the first two housing loans taken under a person’s name would be covered as a Retail loan, and from the third loan onwards, it would be treated as a Commercial loan. The difference between the two types of loans granted would be the rate of interest charged for the loans; retail loans are given at a lesser rate of interest than the commercial loans.
As far as CIBIL is concerned – the score is used to check whether the credit worthiness is high. The score reflects how many loans a person has taken, how many have been repaid, how many are still to be repaid, frequency of repayment i.e. any overdues or anytime the person had failed to repay an EMI on time. It also includes all the inquiries you made or were made in your name for any loan.
Keep in mind that each time an inquiry is made the score falls by a few points. Also, the CIBIL score would also be a factor in deciding the rate of interest that would be charged. Usually, a score of 700+ is desirable, but again it all depends on the bank or financial institution.
Can I get tax benefits on the second home?
There is no limit in the number of properties that a person can own. A person can claim tax benefits on all the home loans that have been obtained by him.
While deductions under Section 80C on the principal amount of the loan may not be available in the case of your second house, a person can enjoy tax benefits on the interest component.
Earlier, in the case of a rented or deemed rented house, the interest was fully deductible.
It meant that if the interest payable on the loan taken for the purchase of the second house was larger than the rent received, the remaining portion could be adjusted against other income.
However, now a limit of Rs 2 lakh has been imposed on such adjustment. The remnant portion of the interest, if any, can be carried forward for 8 successive years to be adjusted against income from house property only and under no other head.
Tax benefit on interest payment –
A person can claim deductions on the payment of interest amount on a loan taken for the purchase, construction, repair, or renovation of any property. This deduction can be availed under Section 24(b) of the Income Tax Act and is available on any commercial or residential property which is owned by the person. This deduction is available even when the money is borrowed from a housing company or from friends and relatives. However, it is important to note that the deduction can be claimed only from the year in which the possession of the property is taken.
Thus, if the property is still under construction, the interest which is paid during the construction period cannot be claimed before the completion of the construction of the property. 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 taken.
Tax benefit on repayment of the principal amount –
The tax laws not only allow a person to claim deductions for interest but also allow a person to rebate for repayment of the principal amount under certain circumstances. As per provisions of Section 80C, an individual and a HUF can claim up to Rs 1.5 lakhs for repayment of principal of housing loan taken from specified institutions for residential house property. This deduction is available with other eligible items like provident fund contribution, life insurance premium, tuition fees, PPF contribution, NSC, ELSS, etc. This deduction is also available for any amount paid for registration and stamp duty of a residential house.
The income tax laws do not have any restrictions on the number of houses for which a person can claim this deduction. The income tax laws also do not distinguish between self-occupied property or a property that has been rented out, for this purpose. So, a person can take home loans for more than one property and the aggregate amount of deduction shall be restricted to Rs 1.5 lakhs, for repayment of the principal amount of all the home loans taken together.
This deduction too can be claimed, only after possession of the property has been taken over. If a person has started repaying the principal of a home loan before taking possession, no tax benefits can be claimed for such payment. Please note that repayments of loans taken from friends and relatives are not eligible for this deduction. In case you sell or transfer the residential house within five years from the end of the year in which the home loan was taken, no deduction is allowed in the year of transfer. Moreover, the deductions claimed in the earlier years are reversed and taxed in the year of such transfer.
Can I take multiple loans on the same house?
No, a person cannot apply for multiple home loans over the same house. This is due to the formation of CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India). Once a loan has been sanctioned by the nationalized banks, the central registry has all the details of the loan amount and the property. So, if an individual tries to apply for another loan on the property, it will not be possible. The option of obtaining a balance transfer is possible, however, a person cannot avail two home loans on the same property.
This is done to maintain a central registry of property on which loans have already been availed. It also helps to prevent fraudulent transactions that may arise out of the same asset (property) being mortgaged to multiple lenders. The CERSAI maintains a history of all the charges that were created over the property.