Do you have enough money to afford a second home loan?Before you leap on the second home loan, you need to ask few questions to yourself? Do you have enough to take the debt of the first loan as well as the second? Can you spare enough money for your family after paying off your debts? Is your second home a real need?
Well, the answer lies in your expenditure to income ratio. If your income is much higher and you need to save on your taxes, then it is worth taking a second home loan.
Going forward when you are planning for the second loan you are taking a new debt and the second home loan interest rates are a bit higher than the first loan. It can be higher by a quarter point or half a point, so it becomes more expensive to take on the second loan.
Down payments for second mortgage loan rises from 10% to 20%. Here is the point, where you need to convince the bank that you have sufficient finances to cover up both the mortgages and also adequate to spare.
Deciding your budgetDetermining your loan amount is another important factor as this will determine your down payment amount and your monthly EMIs. Considering a higher down payment will lower your monthly EMIs and also your interests but that needs to be paid from your pocket. Whatever loan amount you decide to take, you should not forget that this loan amount excludes your funds for necessities and your emergencies.
Choose your tenureYou need to choose your repayment tenure wisely. Tenure can be from 15 to 30 years; a lesser tenure comes in with higher EMI amount but a lower repayment amount. In case you have other monthly expenses, then it would be more feasible to choose a 30-year tenure as this will have a lesser dent in your monthly expenses.
Tax implication of second homeIf you are investing in your second home, this property will be considered as your ‘let out’ property. Income from the rent of your second home is subjected to tax under “income from house property”. If your house isn’t on rent still it is “deemed to be let” where a notional rent value is considered for gross taxable rent and accordingly tax is calculated.
Tax benefitsApart from the above factors, you can avail tax benefits from your second home. Although your principal amount may not be considered for tax deductions under Section 80c, you can enjoy tax benefits on the taxes.
Summing upConsidering the above factors, it is very important to decide rationally before availing a second home loan, so that it doesn’t turn out to be a costly affair.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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