A home loan is a specified aggregate of money that an individual acquires from a financial institution to purchase or develop a house.
Home loans can likewise be used for expanding, repairing and renovating an existing property. Lodging loan is a type of secured loan, wherein the property being purchased is pledged to the bank or lending establishment till the borrowed sum is repaid alongside the interest.
In India, home loan interest rates start at as low as 6.80% p.a., with loan tenure stretching up to 30 years.
For numerous people, purchasing a house can be a troublesome assignment because of increasing real estate price or absence of surplus cash. Hence, a home loan can help in making this large money related stride without breaking the reserve funds and investments.
Home loans come with a large group of benefits and features, including balance transfer office, top-up loan, flexible repayment choices and speedy endorsements.
Home Loan: Features and Benefits
Features and benefits of home loans shift for different lenders and loan schemes. Some of the basic ones are listed below:
- Lower Interest Rates: A home loan is a drawn out commitment, in this way, interest rates assume a significant role in deciding not just the loan sum, yet additionally the tenure of repayment. Banks and monetary foundations offer reasonable and attractive interest rates to make home loans more affordable than personal loans.
- Flexible Loan Tenure: Home loan repayment period is ordinarily of as long as 30 years, however this depends on the lender, the chosen loan scheme and repayment limit. Since the tenure is excessively long, lenders provide their borrowers with the choice to prepay or foreclose their remarkable sum whenever they are in a condition to do as such. Borrowers can likewise choose their loan tenure, in the event that they are able to convince the lenders of timely loan repayments.
- Tax Benefit for Interest Amount: A home loan EMI (Equated Monthly Installments) has two components – interest sum and chief sum. The interest paid for the year can be claimed as deduction up to a limit of Rs. 2 lakh under Section 24 of the Income Tax Act, 1961.
- Tax Deduction on Principal Repayment: The vital component of a home loan EMI paid for the year is allowed an assessment deduction under Section 80C of the Income Tax Act, 1961. The most extreme sum that can be claimed is up to Rs. 1.5 lakh. In any case, to guarantee this deduction, the purchased property ought not be sold within 5 years of possession.
- Additional Tax Deduction on Home Loan: Home loan borrowers get extra expense deduction of up to Rs. 50,000 and Rs. 1.5 lakh under Section 80EE and Section 80EEA, respectively. To guarantee the tax cut under Section 80EE, the home loan sum ought to be Rs. 35 lakh or less, the value of the property ought not exceed Rs. 50 lakh and borrowers ought not claim some other house on the date of the authorization of loan. To guarantee tax reduction under Section 80EEA, the stamp value of the property ought not exceed Rs. 45 lakh and the borrower ought not possess some other house on the date of approval of loan.
- Easy Balance Transfer Facility: Home loan balance transfer is an office wherein the remarkable loan sum with one lender can be transferred to another lender, which offers a lower interest rate or better loan terms. The new lender pays off the entire extraordinary loan add up to the previous lender. After this, the borrower pays the EMIs at the new rate to the new lender.
- Top-up Loan Facility: There may come a time when you would need money over or more your existing home loan. For such circumstances, lenders offer a top-up loan office. It is an extra sum that you can benefit over or more your existing home loan. The office isn’t offered to all the borrowers as different elements like borrower’s repayment limit and past credit records are taken into consideration before giving out this benefit.
Types of Home Loan
Banks and Housing Finance Companies (HFCs) offer home loans for different purposes. So before applying for a home loan, assess your requirements so as to get a suitable home loan scheme. Some of the types of home loans available are as per the following:
- Home Purchase Loan is the most widely recognized type of home loan availed as a rule to purchase ready-to-move-in properties, under development properties and pre-owned homes/resale properties. As per RBI guidelines, lenders can offer loan-to-value (LTV) proportion of up to 75-90% of the property value.
- Composite Loan is a perfect financing answer for people who need to purchase a plot of land either for investment or for building a house. In this type of home loan, the main disbursement is made towards the purchase of plot. The subsequent payments depend on the stages of development of the house.
- Home Construction Loan is available for people who need assets for the development of a house. The loan is granted just in the event that you own a plot of land and plan to develop a house on it. Similarly as in composite loan, here too the disbursement depends on the stages of development of the house.
- Home Improvement Loan can be availed to support home renovation and home repairing expenses of the existing house. The interest rate for this loan is same as that for a regular home loan. However, its loan tenure is shorter than the regular home loan.
- Home Extension Loan is for those who require assets to add more space to their abode. Under this loan type, money related establishments generally lend 75-90% of the development estimate, depending on the loan sum and LTV proportion.
- Bridge Loan is a transient home loan and is suitable for people who wish to purchase a new house with the sale proceeds of the existing home. The loan helps in covering the hole between the purchase of a new house and the sale of an existing house.
- Interest Saver Loan is like home loan overdraft office. In this, the borrowers’ home loan account is linked to their bank account. Any sum deposited in the bank account over or more the EMI sum is used as prepayment towards the loan, in this manner, saving money on the interest sum.
- Step Up Loan is a type of home loan where borrowers pay lower EMIs during the underlying years of the loan tenure. However, there is an arrangement of increasing the EMI sum over time. This makes the loan affordable for youthful professionals who simply start their career.
Types of Home Loan Interest Rates
Home loans are sanctioned either at fixed interest rates or coasting interest rates. Read below to discover more about it.
What is Fixed Rate Home Loan? In case of fixed rate home loans, the rate of interest applicable at the time of loan disbursal remains steady during the loan period. What’s more, because of the unchanged interest rate, the loan EMIs additionally remain steady. A disadvantage with fixed rate home loan is that its interest rate is normally 1% – 2.5% higher than the interest rate for skimming rate home loan. Furthermore,