A home loan is a secured loan that is obtained to purchase a property by offering it as collateral home loans offer high-value funding at economical interest rate and for long tenors. They are repaid through EMIs. After repayment, the property’s title is transferred back to the borrower. The lender possesses the legal rights to recover the outstanding loan amount by the sale of the property in case borrower cannot repay the dues.
Types of Home Loan
- Home purchase loan: taken to purchase a home.
- Home improvement loan: Taken to repair/renovate home.
- Home construction loan: Taken to build a new house.
- Land purchase loan: Taken to buy a plot of land for constructing his/her own house.
- Home extension loan: Taken to add another floor, room, garage, bathroom or kitchen etc.
- Joint home loan: Taken by Two or more people, for instance, spouses.
- Home Loan balance transfer: Allows you to switch lenders and transfer your outstanding loan amount to enjoy better terms and condition and low interest outgo.
- Top-up home loan Allows you to borrow funds over and above the outstanding loan amount at nominal rates and for any purpose.
What is Home Loan in India?
As mentioned above, a Home Loan is a form of financial assistance extended by banks and financial institutions. Such banks or financial institutions can help increase your budget to purchase a house with the loan amount offered. You can avail of the loan by meeting certain Home Loan eligibility criteria for a specific tenure. You must return the loan amount borrowed over the course of the tenure along with interest according to predetermined interest rates. You repay the Home Loan in monthly installments, just like you would repay any other loan. Today, most banks offer Home Loans that not only help you purchase ready-made homes, but also facilitate the construction of a house from scratch. In addition, you can also seek Home Loans for renovation or repair purposes.
What are the benefits of a Home Loan?
When you opt for a Home Loan, you can enjoy the following benefits:
- Taxation:A Home Loan allows you to claim income tax deductions on the interest and principal amount due. Under the Income Tax Act, 1961, as per Section 80C, you can claim up to INR 1.5 lakh on principal repayments, and up to INR 2 lakh on interest repayments under Section 24B. You can avail of other tax benefits via a Home Loan, as well.
- Interest Rate: When compared to the various kinds of loans available, the interest rate on a Home Loan is relatively lower. Plus, in case of a cash crunch, you can also apply for a Top-Up Loan in addition to the existing Home Loan.
- Due Diligence: When you apply for a Home Loan, banks check the property from a legal standpoint and ensure that the documents are valid and the title is clear. This step can prevent you from being scammed and passing this due diligence can validate your property.
What are some important factors to consider for a Home Loan?
Apart from knowing what a Home Loan is, it is important to know how to opt for the correct option among the various types of Home Loans offered. To apply for a Home Loan that will work best for your requirements you must consider the following factors:
- Interest Rate: Make sure to understand the kind of Home Loan interest rate you are being offered. A variable interest rate can vary during the tenure as opposed to a fixed interest rate that remains the same.
- Tenure: The tenure is an essential variable and decides the EMI amounts payable each month on the due date. Thus, knowing the exact tenure can help you plan your finances accordingly.
- Application: It helps to choose a Home Loan that has a simple application process without excessive documentation. Ideally, you should pick a Home Loan that allows for online application and quick disbursals.