Everyone knows that they need to deal with extra charges and extended tenures if they opt for a moratorium on their home loans. We suppose that you are also aware of these effects. However, these are not the only two ways in which a moratorium period affects your home loan. It can also modify the housing loan tax benefits that you receive. To know the tax benefit you can click here.
A moratorium works separately on the principal and interest amount of your loan. Here is how it alters them.
Moratorium On Principal Amount
In case you don’t know, the principal is the sum that you borrow from the lender. Any additional charges that you need to pay throughout the tenure of your loan are not counted in this amount. When you opt for a moratorium, the overall principal amount paid in a year gets reduced. So you receive tax benefits only on the sum that you deposit apart from the moratorium. That means your tax benefits decreases.
According to the current laws, you can opt for a moratorium for up to 6 months. The higher period you pick, the lower the tax benefits get. When you go for an entire six-month moratorium period, you pay half the principal amount, and you receive half the tax benefits.
Even without the moratorium, you can only get a tax benefit of up to 1.5 lakh rupees under Section 80C. In case you are repaying the principal worth more benefits than that, you can consider other investment options as well.
Moratorium On Interest Amount
Apart from the principal, you also need to pay a certain amount of interest with each of the EMIs. Under Section 24 (b), you can obtain housing loan tax benefits for up to 2 lack rupees of your interest amount on a self-occupied property. Unlike the principal sum, a moratorium can work in two ways here:
- No Effect: You get tax benefits on the due interest and not the actual amount of repayment. The expected interest remains the same whether you opt for a moratorium or you don’t. Therefore, the moratorium period doesn’t technically affect the tax deduction on interest of your loan.
- Increase: This may sound exciting that the moratorium period can increase your tax benefits on PNB housing loan interest rates. But it will only happen if the interest rates go high during the moratorium. In case you are lucky enough, you may exhaust your 2 lakh rupees’ limit of the tax benefits on your loan interest. Plus, it will only be advantageous when you aren’t already exhausting your deduction limit.
In the end, we can simply conclude that a moratorium period has the following advantages:
- No EMIs for up to six months
- Similar or more tax benefits on the interest amount
And it has the following disadvantages
- There may be some extra charges
- Extended loan tenure
- Reduced tax benefits on the principal amount of the loan
You can decide whether you want to opt for the moratorium period or not based on your financial situations, any short term goals, and preferences.