Should I lower my home loan EMI as I want to sell it in 3 years ?

POSTED BY abhaybakshi ON November 28, 2014 9:41 am COMMENTS (5)

Hello,

I have a home loan of 21 lakh rupees and the tenure is 15 years. Full EMI started in August 2012 and I am getting the possession in next month Dec 2014. EMI I am paying is around 22000 rupees. Now, I have purchased this flat for investment purpose only and would surely be selling it after 3 years to avoid STCG. I am planning to give it on rent from next month.

My query is that, should I lower the EMI by increasing the tenure of loan to say 25 years ? The thought behind this is that, since I will be selling this flat soon, why should I pay high amount as EMI  as the purchaser will anyway clear my outstanding loan at that time.

For e.g. as per my current EMI (22000) , I will pay 792000 rupees in 3 years and my outstanding would be around 14 lakhs. But now if I lower my EMI to say 15000 rupees and offset it with the rent that I receive for 3 years, I will virtually be paying no EMI and I am happy even if outstanding loan is still around 18 lakhs.

So the question is, why should I necessarily be paying high EMI ?

Need some help people…

Regards,
Abhay

5 replies on this article “Should I lower my home loan EMI as I want to sell it in 3 years ?”

  1. nsabhyankar says:

    1. I am afraid I don’t get the tax benefit argument. Don’t you have to pay the higher interest amount in order to get the higher tax exemption? Why not reduce the amount of interest paid in the first place?

    Assuming a 30% tax rate,
    Case 1. Interest = 100. Tax exemption = 30. Net outflow = 70.
    Case 2. Interest = 90. Tax exemption = 27. Net outflow = 63.

    I feel case 2 is better than case 1. Can anyone explain if its wrong or if I am missing anything?

    2. Also, if I pay less interest till the house is sold, will not the take home be more?

  2. abhaybakshi says:

    Ramakant,
    What you are saying is absolutely right. Will do some calculations and get back to you.

  3. ramakantp says:

    Abhay,

    Few more things to consider:
    1. If you are paying more EMI, more interest will be payed per year that you can claim for tax benefit, as house is not self occupied there is no limit on this amount.
    2. If the sell price of the house is X, at the end of 3 years then the take home after sell, in case higher EMI is being paid would be higher.

  4. abhaybakshi says:

    Yes but it will not work. SBI has clearly told me that I can not increase loan tenure now. You should have opted for 25 years when you applied for loan itself…

    I usually choke up when SBI people talk to me. What they speak is full and final and no scope for conversation !!!!

  5. Hemanth says:

    What you are telling makes sense…. if you plan to do the same that you said, go ahead with your plan of decreasing your EMI….

    One question : why EMI at 15k, but not 10k or 8k

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