Do You Know the Interest Rate on Your 3rd Home Loan Can be More than the Prevailing Rate?
Last Updated : May 4, 2020, 4:51 p.m.
Buying more than one home is common with most and, that too, on a home loan. While the interest rate for the first two homes can match with the prevailing market rate, the rate for the third one and furthermore acquisitions will be a few percent above the same. The market rate refers to the normal rack of interest rate. So, for the third home, you will be paying more interest compared to what others would be doing for their first and/second homes. You may ask, why does the rate for the third home and the ones after that is more than the normal interest rate? As per the banking norms, properties more than two classify under commercial real estate (CRE) by default. The rates for CRE, which is meant for acquiring a property to build commercial spaces such as malls, offices, etc, are usually higher. Let’s check out the CRE home loan rates and see how higher they are in comparison to regular home loan rates.
So, What are the CRE Home Loan Rates That Prevail Now?
| Lenders | CRE Home Loan Rates (In Per Annum) | Normal Home Loan Rates (In Per Annum) |
|---|---|---|
| State Bank of India (SBI) | 7.45%-8.10% | 9.15% - 11.30% |
| HDFC Limited | 8.75%-9.75% | 8.50% - 9.40% |
| PNB Housing Finance (PNBHFL) | 9.80%-10.75% | 8.50% - 11.95% |
| LIC Housing Finance (LIC HFL) | 9.50%-10.50% | 8.50% - 10.75% |
| Bank of Baroda | 7.25%-8.65% | 8.50% - 10.60% |
| Canara Bank | 7.40%-9.40% | 8.85% - 11.25% |
How Much Loan is Permissible Under the CRE Home Loan?
The loan is financed at a certain value of the property cost. In the current scenario, loans are disbursed at around 70%-90% of the property cost. But while deciding the loan amount, lenders also consider your income and repayment capacity. So the loan amount will most likely be such that the proposed EMI won’t account for more than 60% of your net monthly income (NMI). In case any loan is already running, the loan eligibility could reduce.
Important Aspects to Consider
The rate for the third home loan can be at par with the normal interest rate if you have sold any of the previous two properties. It clearly means the CRE rates will apply only if all three properties are in your ownership. If the previous properties were registered under the names of your parents, the CRE rates won’t apply. One more thing home loans can have co-applicants too. Will that influence the lender to classify the third home loan under CRE if the previous two home loans have co-applicants ? Yes, it will if you were the co-owners of the property too.
Is there Any Restriction on the Number of Housing Units Under CRE Home Loan?
Yes, the number of CRE units are restricted to three.
Is There Any Restriction on the Number of Housing Units You Own on a Home Loan?
The maximum number of home ownership is restricted to five on a home loan.
Will It Change the Taxation Dynamics If the Third Home Loan Does Come Under CRE?
This will depend on how you use the third home. If you do use it for business or profession, you claim tax deductions for expenses incurred on repairs and maintenance. Plus, you can claim full deduction on the interest payment made in a financial year under Section 24(B) of the Income Tax Act. The full tax deduction on interest payment will remain even if you don’t put it for business use as it falls under CRE. But you can’t claim 80C deductions, which are normally available on the home loan principal amount for upto INR 1.5 lakh a year. Otherwise, the tax deduction on interest repayment is capped to INR 2 lakh a year along with deductions of upto 1.5 lakh a year on principal repayments.