Which loan should you prepay first – car loan or housing loan?

Updated: November 5, 2019 11:39:47 AM

It is not advisable to keep a loan outstanding on a depreciating asset. Here is why.

car loan, housing loan, Which loan to prepay first, PMAY, HDFC BankA car is a depreciating asset whereas a house is an appreciating asset.

By Chaitali Dutta

* I have a car loan and a home loan. Now I have got some lumpsum money. Which loan should I prepay first?

– Amit Sharma

Pay the car loan first. That would be at a higher rate of interest. A car is a depreciating asset whereas a house is an appreciating asset. It is not advisable to keep a loan outstanding on a depreciating asset.

* I want to sell my property for which I am servicing a loan. Do I have to repay the full amount before selling it?

—Umang Kumar Mehta

Yes, sale of a mortgaged property cannot be done by the part-owner alone. You need to tell the buyer that the loan is outstanding. The first amount the buyer pays is directly credited to the loan account to the extent of the loan outstanding, thus freeing up the existing mortgage on the property. Then the remaining amount is paid to you and you hand over the original property papers to the buyer along with the present sale agreement.

* I took a loan of Rs 20 lakh from HDFC Bank and got the PMAY subsidy. The bank says that I have to continue the loan for minimum for 15 years or else return the subsidy amount as per the tenure. What should I do?

—T S Rajveer

What the bank says is correct. If you do not run the loan for the maximum term of the PMAY scheme you need to refund the NPV of the subsidies you would have got for the remaining tenure. In PMAY, subsidy is credited upfront to the loan keeping the original loan period in calculations.

* I am buying a property in the name of my wife as I have a flat in my name. Can she get PMAY benefits as she does not have any house in her name?

—S Prasad

No, under PMAY the entire household should not own any property. So your wife will not be eligible for PMAY scheme.

* Five years ago, as an PSU bank employee, I took a housing loan at a concessional rate given to employees. Now, I have resigned and joined a private sector bank. The PSU bank is asking me to pay the market rate for the remaining loan amount. What should I do?

—Anmol

That is correct. The concessional rate of interest is offered to bank employees until they are working with the organisation. As now you are employed elsewhere, you need to start paying the market rate of interest.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to
fepersonalfinance@expressindia.com

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