The only question on home owners' minds now is 'Will home loan interest rates come down in the next budget?' says, Balaji Rao

The Vote-on-Account or the Interim Budget presented by the Finance Minister, P. Chidambaram, this week was a non-event for the housing sector. Since the financial year end is fast approaching, tax payers will have to scramble to get their Principal – Interest component statements from their respective banks / HFIs. Due to fluctuations in the interest rates through the year (based on the changes proposed by the RBI in its monetary policy announcements), for borrowers who are in floating rate option the EMIs would have fluctuated too. Hence, there could be changes in their pattern of monthly outflow.

For example, in line with the changes in the interest rates as passed on by the lenders (banks) during 2008-09 (April 2008 to March 2009), the EMI on a loan amount of Rs.35.58 lakh for a period of 244 months had changed like this: contribution towards interest had increased from Rs.34,635 from April 2008 to August 2008 to Rs.36,695 from September 2008 to March 2009; the bank (a private bank from where the loan had been taken) had passed on the hike in interest rates to the borrower.

The same bank had passed on the benefit of lowered interest rate during the subsequent year — 2009-10 — wherein the contribution towards interest had reduced from Rs.36,695 to Rs.35,387 and then further reduced to Rs.34,137. But again during 2011-2012 the interest rates were raised, taking the interest component back to Rs.36,998. Ever since, most banks/HFIs have maintained a status quo on interest rates and the EMIs seem to have remained unchanged.

However, home loan borrowers should get this statement from their banks and check such changes which would be considered while computing their tax obligation by their respective employers (for salaried individuals). May be one could save on investing in additional tax saving instruments if there would have been any increase in the contribution towards principal component (Sec. 80 C).

During last year’s Budget the Finance Minister had announced an additional Rs.1 lakh tax benefit for first-time home buyers whose loan amount does not exceed Rs.25 lakh and the value of the property does not exceed Rs.40 lakh. This exemption was offered over and above the prevailing Rs.1.50 lakh given under Sec.24. The new section introduced for this additional exemption was Sec.80EE.

Individuals who are eligible to get this additional exemption can obtain the interest payment statement from their respective lenders.

With the election fever heating up, it would be interesting to see which party and who will present the next big budget of the world’s largest democracy. The only concern that would remain is – will the interest rates come down?