two-white-housesToday was a happy day for a family friend – He and his wife have just been handed the keys to their new home. Having helped them through the process, the mix of happiness and relief on their faces was something I totally understood.

With the house warming ceremony done, we all sat down and were relaxing, when my friend suddenly asked me, “Do you think I will be eligible for a second home loan anytime soon?”  The question did not really surprise me as there are several young couples that are investing in a second home, as early as at 40 years of age.

If you are in the same boat as my friend, perhaps this article will help you plan your second home loan better. There are few factors that you will have to ascertain before you take the plunge:

Today was a happy day for a family friend – He and his wife have just been handed the keys to their new home. Having helped them through the process, the mix of happiness and relief on their faces was something I totally understood.

With the house warming ceremony done, we all sat down and were relaxing, when my friend suddenly asked me, “Do you think I will be eligible for a second home loan anytime soon?”  The question did not really surprise me as there are several young couples that are investing in a second home, as early as at 40 years of age.

If you are in the same boat as my friend, perhaps this article will help you plan your second home loan better. There are few factors that you will have to ascertain before you take the plunge:

1. Can you afford a second home?

The economy is a volatile one and this is the first questions you have to ask yourself. If you are currently paying the EMI on a home loan, a new loan will be an added financial burden. Ask yourself the following:

  1. Do I need a second home?
  2. Will my income over the next couple of years grow to accommodate this additional expense?
  3. Is my job secure?
  4. Will I be able to absorb the effects of taxation laws such as municipal tax and rental yield tax?
  5. Will my returns on this investment balance the financial burden of a second home loan?

2. Are you eligible for a second home loan?

Remember that the terms of a second loan may not be similar to your first. The upfront amount you have to pay will be higher since banks will back you up to 75% of the second home value only. The interest rates will be higher too.

3. What loan amount you will receive?

This will depend entirely on the bank’s discretion which will take your current EMI and your monthly income into consideration.

4. Can you handle the additional taxes?

When you buy a second home, it is assumed that it is not for personal use. Thus taxation laws are applicable.

Once you have your answers to these above questions figured out and are willing to go ahead, note that banks will examine your application for a second loan on the same criteria. There is a tax benefit from your second home loan as well, but this will be based on the calculations of income from this new property. The benefits will be:

  • Since the property is considered to be rented out, you will be allowed the full interest on the second home loan as a tax deduction. You will not have the ceiling limit applicable as with the self-occupied property.
  • With regard to the principal, all your properties together will be eligible for a Rs 1 lakh deduction.

These are the basics of getting a second home loan and are exactly the points of advice I gave my friend as well.

Major Take-Aways

 

  • You can consider applying for a second home loan soon after your first.
  • Question your intentions based on affordability, taxation implications and loan eligibility.
  • Benefit from second home loan taxation laws.

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