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About Home Loan

A home/housing loan, also known as a mortgage, is an amount of money borrowed by an individual, usually from banks and companies that lend money. The borrower has to pay back the loan amount with interest in Easy Monthly Instalments or EMI’s over a period of time that can vary between 10-30 years depending on the nature of the loan.

There are different kinds of home loans options that are made to suit each unique situation. You can take home loans to buy properties that are either commercial or personal in nature.
Here are some of the different kinds of home loans you can take.

  1. Home Purchase Loan – You can buy any house or home that is within your budget
  2. Construction Home Loan – You can use this loan to cover the costs of building a house
  3. Land Purchase Loan – You can use this loan to buy a piece of land
  4. Home Improvement Loan – You can use this loan to renovate and improve your house
  5. Home Repair Loan – Pay for the cost of repair and restoration of your home
  6. Home Extension Loan – Increase the amount of built up space at your home using this loan.

TYPES OF HOME LOANS IN INDIA

Home Loan

This is the most common type of home loan availed to purchase a house. There are many housing finance companies, public banks, and private banks that offer housing loans where you borrow money to purchase the house of your choice and repay the loan in monthly instalments. You can get up to 80%-90% of the house’s market price in the form of financing. The lender will hold the house until you completely repay the loan.

Home Construction Loan

This is the right home loan type if you already have a plot of land and you need financing to construct a house in that land.

Home Extension Loan

Say you already own a house and you would like to extend the house with another room or another floor to accommodate the growing family. Home extension loan provides financing for this purpose.

Home Improvement Loan

A home improvement loan provides financing for renovating or repairing the house if there’s any fault in the existing system, such as painting the house’s interior or exterior, plumbing, upgrading the electrical system, waterproofing the ceiling, and more.

Home Loan Balance Transfer

The current home loan interest rate may be overwhelming, or you may not be happy with your current lender’s service; you can transfer the home loan’s outstanding balance to a different lender who offers a lower interest rate and better service. Upon transfer, you can even check out the possibilities of a top-up loan on your existing one.

Composite Home Loan

This type of home loan provides financing for purchasing the plot of land where you would like to construct a house and for the construction, both within a single loan.

IMPORTANT FACTORS TO CONSIDER WHEN APPLYING FOR A HOME LOAN

Principal

This is the amount of money you will be borrowing from the bank or financial institution.

Duration

How long you will be paying back the loan. Depending on the nature of your expected income, you can select a period that suits you.
Interest

The bank or financial institution charges interest in exchange for its money lending services. The rate of interest is dependent on the amount of the principal and the duration for which you will be repaying the loan.

EMI Amount

You will be paying monthly instalments for the duration of your borrowing, until the end of the loan period. Each EMI is a combination of principal + interest. With each EMI, you will be paying back more of the principal and costs of interest will gradually reduce.

Benefits of Taking a Home Loan

Tax benefits

The foremost benefit of a home loan is the income tax deduction you can claim on the interest and principal repayments. You can claim up to Rs.1.5 lakh on principal repayments u/s 80C, up to Rs.2 lakh on interest repayments u/s 24B, up to Rs.2 lakh on interest repayment in special circumstances u/s 80EE and 80EEA, and up to Rs.1.5 lakh on stamp duty expenses u/s 80C.

Lower interest rate

The home loan interest rate is much lower as compared to any other loan types available. If you come across a cash crunch, you may get a top-up on the existing home loan at a lower interest rate than a personal loan to solve the issue.

Due diligence of property

When you go through a bank to purchase a house, the bank will conduct thorough checks on the property from the legal perspective and check if all the documents produced are valid.

This due diligence check from the bank’s end will reduce the risk of you being scammed. If the bank approves the property, that means you and your house are safe.

Long repayment tenure

Unlike any other loans, home loans come with longer repayment tenure, as much as 25-30 years. This is owing to the significant loan amount one will have to borrow to purchase a house.

Spreading the loan amount and interest applicable over a longer tenure will reduce the monthly EMIs reducing the borrower’s burden.

No prepayment penalty

When you take a floating-rate home loan, you can make prepayments towards the loan whenever you have a lump sum at hand without having to pay any prepayment penalty. This will help you close the home loan much before the set loan tenure.

Balance transfer facility

You can transfer the home loan from one lender to another for several reasons, such as the interest rate, service charges, customer service experience, and others. 

Eligibility

Banks have a list of eligibility criteria for home loans. The first thing banks look at is one’s credit history to understand their repayment habits. Typically, a credit score of 750 and above is preferred. Some other important factors taken into account are as follows:

  • Age
  • Employment Type
  • Minimum Annual Salary
  • Collateral Security
  • Margin Requirements
  • Assets, liabilities, stability, and continuity of occupation
  • Residency status (Resident Indian/ Non-Resident Indian)