While some people purchase just one home during their lifetime, others dream of buying multiple homes. To achieve this goal, securing multiple home loans may become necessary. Therefore, it is important to know if an individual can take multiple home loans and the procedure involved.
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How many home loans can you take?
The number of home loans at one time is limited to five. Further loans can be secured after closing the existing loans. However, the possibility of additional loans depends on factors of income and the ability to manage debt. The overall obligation of servicing multiple home loans, each potentially spanning up to 30 years, can impact savings and repayment capacity. Lenders may scrutinise an applicant’s financial situation. If there is a risk of defaulting on a new home loan, they may deny the loan application to ensure responsible lending practices.
Factors that affect the number of home loans
Income at the time of application
Your income at the time of home loan application influences approval. With an existing home loan, your income needs to be considerably high to handle the financial commitment.
Existing obligations
Your current obligations, including existing home loans and other debts, impact loan approval. Lenders check the Fixed Obligation to Income Ratio (FOIR), ensuring that the sum of all the obligations does not exceed 50-60% of your net monthly income. If it surpasses this limit, negotiating a longer tenure may be necessary.
Job situation
The type of job and workplace reputation play a crucial role in securing a fresh home loan. Working for a reputable company increases the likelihood of approval, provided income and debt obligations are in check. Changes in employment status, such as transitioning from salaried to self-employed, can affect approval. Lenders scrutinise business operations and may deny the loan if income sources are deemed erratic.
How to manage multiple home loans?
Managing multiple home loans requires careful planning and organisation. Here are some strategies to help you stay on top of your financial commitments:
- Keep detailed records: Maintain comprehensive records of each home loan, including the principal balance, payout schedule and payment dates. This will help you understand the specifics of each loan and track your progress in repaying them.
- Utilise technology: Leverage financial management tools, apps or spreadsheets to organise and monitor your home loans. Automated reminders or alerts can notify you about upcoming payments, ensuring you never miss a payment.
- Understand the terms and conditions: Familiarise yourself with the terms and conditions of each loan, especially if you have different lenders. Be aware of any variations in interest rates, payment frequencies and penalty clauses.
- Consolidate the due dates: If possible, align the due dates of your mortgage payments. This can simplify your financial calendar and make it easier to manage multiple payments. Alternatively, space out due dates strategically to ensure a steady cash flow throughout the month.
- Prioritise loan repayment: Identify the loan with the highest interest rate or the shortest tenure and prioritise its repayment. Once that loan is paid off, allocate the freed-up funds to other loans. This can help you save on interest payments.
- Emergency fund: Maintain an emergency fund to cover unexpected expenses or changes in your financial situation. This fund acts as a safety net, preventing you from defaulting on any home loan.
- Regular financial check-ins: Conduct regular financial check-ins to assess your overall financial health. Adjust your repayment strategy, if needed, and consider refinancing options to secure better terms.
Multiple home loans: Tax deductions
Claiming tax benefits on a home loan involves considerations related to interest and principal amounts. Here is a breakdown of the key points:
Interest exemption under Section 24B
- Interest paid on a home loan for purchasing, repairing, or constructing a house is eligible for exemption under Section 24B of the Income Tax Act.
- For a self-occupied property, you can claim interest benefits of up to Rs 2 lakh annually. The exact amount depends on various factors.
- If you have multiple properties, you can claim interest benefits for only one property, which you designate as self-occupied. The second property is assumed to be on rent and does not qualify for interest deduction.
Tax benefit on principal repayment under Section 80C
- Section 80C allows a deduction of up to Rs 1.5 lakh for the amount spent on registration, stamp duty and other formalities related to the home loan.
- This benefit is available only after the house is in your possession and you have not initiated the repayment of the principal amount to the lender.
- The maximum rebate for these expenses is Rs 1.5 lakh, regardless of the total amount spent.
Eligibility for interest deduction
- The loan can be taken from banks, housing companies, friends or relatives to qualify for interest deductions.
- If the loan is for an under-construction property, interest paid until the house is ready for possession can be claimed in five equal instalments, subject to an upper limit.
No tax benefit on principal repayment
While you can claim tax benefits on interest, there is no provision for claiming tax benefits on the repayment of the principal amount.
Conditions for claiming benefits
- To claim benefits under Sections 24B and 80C, the property must be for residential or commercial use.
- Tax benefits are applicable only after the house is in your possession and legal formalities are completed.
FAQs
How many home loans can one person have?
An individual can have up to five home loans. Obtaining additional loans is possible after closing the existing ones.
What factors influence the number of home loans one can secure?
Several factors come into play when determining the number of home loans an individual can secure. The income presented during a new home loan application significantly influences approval. Existing obligations, including the running home loan and other debts, impact loan approval.
How can one manage multiple home loans?
Managing multiple home loans requires careful planning and organisation. Strategies include keeping detailed records of each home loan, utilising financial management tools or apps, understanding the terms and conditions of each loan, consolidating or strategically spacing out due dates, prioritising loan repayment based on interest rates or tenure, maintaining an emergency fund to cover unexpected expenses and conducting regular financial check-ins to assess overall financial health.
What tax benefits are available for multiple home loans?
Tax benefits for multiple home loans involve considerations for interest and principal amounts. Interest paid on a home loan for purchasing, repairing or constructing a house is eligible for exemption under Section 24B of the Income Tax Act. For a self-occupied property, interest benefits of up to Rs 2 lakh annually can be claimed. Tax benefits on principal repayment under Section 80C allow a deduction of up to Rs 1.5 lakh for expenses related to registration, stamp duty and other formalities.
What are the conditions for claiming tax benefits on home loans?
To claim benefits under Sections 24B and 80C, certain conditions must be met. The property must be for residential or commercial use, and tax benefits apply only after the house is in possession and legal formalities are completed. While interest on multiple properties can be claimed, tax benefits on principal repayment are not available.
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