Asset ownership is one of the ways of women empowerment. Thus, the Government tries to incentivise women house ownership. In this post, let’s look at 3 benefits available to women home buyers in India.
#1 Banks Offer Lower Interest Rates to Women
The lenders usually offer lower interest rates to women borrowers. For instance, State Bank of India charges 0.05% less for women borrowers. Hence, if the prevailing interest rate is 7% p.a., the women borrowers will get the loan at 6.95%.
- The EMI for Rs 50 lacs loan for 20 years at 7% p.a. = 38,765
- The EMI for Rs 50 lacs loan for 20 years at 6.95% p.a. = 38,615
About Rs 150 per month less.
Now, this may not look like a big saving but small savings add up. Rs 150 per month for 20 years is Rs 36,000.
By the way, there is no such compulsion under law or RBI regulations for lenders to offer lower interest rates to women. While the banks may have their own reasons to do this, it is a good cause. Asset ownership leads to empowerment.
And since a house is one of the biggest assets for most households in India, there are not many better ways to do this than providing incentives for women participation in house ownership. The Government of India launched Sukanya Samriddhi scheme in 2014 to achieve a similar objective. Incentivise savings in the name of the daughter by offering tax benefits and good returns. Such savings can subsequently only be used for the education and wedding of your daughter.
By the way, these lower rates are usually even when a female is a co-borrower. Hence, if you buy a house jointly with your wife, you will be eligible for a low interest rate. Now, most lenders insist that co-borrowers must also be a co-owner in the property. Hence, if you want to include your wife as a co-borrower, she must also be the owner in the property.
#2 Lower Stamp Duty
Land is a state subject. And many states allow a lower stamp duty for women home buyers.
For instance, Maharashtra currents give a concession of 1% on stamp duty to women owners. Given how expensive real estate is in India, this can translate to significant upfront cost savings. So, if the value of the property is Rs 1 crores, purchasing the property in the name of a female member in the family results in immediate cost saving of Rs 1 lac. This is again to incentivise asset ownership in the name of women.
In Delhi, the stamp duty concession is 2% for women buyers and 1% if the property is jointly bought with a woman. Therefore, the savings are even bigger in Delhi.
Not all states may allow a concession.
#3 Increased Loan Eligibility and Tax Benefits
This feature is not exclusive to women home buyers, but for joint loan borrowers.
Increased Loan Eligibility
If both husband and wife are working, applying for a joint loan (buying the property together) will result in higher loan eligibility too. The lenders look at the Fixed Obligations to Income Ratio (FOIR) while deciding your loan eligibility. Fixed obligations will include EMIs for your existing loans (and the EMI for loan under consideration) and certain lenders may also consider your rent in specific cases.
Now, banks do not want that your FOIR to exceed a certain percentage of your income. The banks may have internal credit guidelines for FOIR but it can range from 40% to 60%. For high net-worth individuals, it can be higher.
Higher your FOIR, the less is your disposable income. And if the FOIR exceeds the threshold, you may struggle to repay the loan.
If you and your wife are jointly applying for the loan, the combined income will be considered to calculate loan eligibility. And thus, your loan eligibility will be higher. Let’s understand this with the help of an example.
Amit and Vineeta have been married for 5 years. They plan to buy a house. The net monthly take-home income is Rs 1 lac each.
Amit has 2 outstanding loans. He pays an EMI of Rs 10,000 and Rs 12,000 each. Total of Rs 22,000. Vineeta has no loans outstanding.
Assuming Amit applies alone for a home loan, the bank won’t be comfortable with a total EMI of more than Rs 50,000 per month (50% of Rs 1 lac). Amit already has EMIs of Rs 22,000. Hence, the maximum EMI can be Rs 28,000. At the interest rate of 7% and tenure of 20 years, the maximum loan eligibility is Rs 36 lacs. What if he needs a bigger loan?
If Amit and Vineeta apply together, their total disposable is now Rs 2 lacs. Total EMI of Rs 22,000 (assuming Vineeta does not have any loans). FOIR of 50% means the bank is comfortable as long as the EMI does not breach Rs 1 lacs. That means Amit and Vineeta can take a loan where the home loan EMI does not breach Rs 78,000 (Rs 1 lac – 22,000). This increases the home loan eligibility to Rs 1 crore.
Joint purchase of property can result in better tax benefits for the family too.
You get tax benefit for principal repayment (up to Rs 1.5 lacs per annum under Section 80C) and for home loan interest payment (up to Rs 2 lacs per annum under Section 24). These tax benefits are per person (and not per property). So, if husband and wife have taken a joint home loan, both get the above tax benefits.
Sometimes, the benefit for the interest payment does not get completely utilized. For instance, if the total interest outgo is Rs 3.5 lacs for the year, a single borrower can take benefit of only up to Rs 2 lacs per year. If the property is jointly held by two persons (husband and wife), they can split the interest payment (Rs 1.75 lacs each) and maximize tax benefit.