Your Queries – Loans: Shorter tenure for education loan better if parent is paying


By Chaitali Dutta

Should I look for a shorter tenure of three years for an education loan and is there any penalty for prepayment?
— S R Kumar

Typically, an education loan tenure would be 6-7 years as the repayment of the loan is expected to be done by the student once the course is over. However, if you, as a parent, feel that it is your responsibility to provide for higher education to your child, then a shorter tenure is better. That way the total interest payout is smaller.

Can I transfer my floating rate home loan to a bank on fixed rate of interest?
— Ashok Bisht

Yes, when you do a balance transfer of a home loan to another provider, you can tweak the characteristics of the loan. However, do calculate the total costs involved in the transfer. The extra spread of interest you pay for a fixed loan should be less than the expected higher interest payment on the floating rate loan.

My housing finance company insists I have to pay a simple interest on the loan for pre-payment. Why is it so?
— VR Vishwanath

When full repayment is by a cheque, the provider may add a few days’ interest on the current balance, to cover the fund clearance. The interest is calculated on the formula of daily reducing balance itself. But, if we look at the formula, as the balance would remain the same for these 2-3 days, a simple interest formula would give the same outcome.

For a top-up loan, do I need to have a home loan from the same bank?
— Anmol Vatts

Yes, a top-up must be from the same firm as the mortgage of the property is done with the home loan provider. A top-up loan is also essentially a home loan; hence the second provider won’t be able to have a security to the mortgage.

Can one get Section 80E tax benefit on interest paid on education loan taken from foreign financial institutions for overseas education?
— Soumyashree

Interest on education loan is exempt from income tax if the loan is taken from a financial institution approved by RBI. Hence, an education loan taken from a foreign financial institution, will not be covered under this clause.

(The writer is founder, AZUKE Personal Finance Advisory (www.azukefinance.com). Send your queries to fepersonalfinance@expressindia.com.)

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