What is home loan?

What is home loan?

Buying a house is one of the biggest dreams come true for most people and an extravagant affair altogether. Imparting life to such a dream requires a lot of effort from the buyers’ end and the best one can do to accommodate the home in their budget is through a home loan. A home loan can be opted to buy a new house/flat or a plot of land where you construct the house, and even for renovation, extension, and repairs to an existing house.

Types of Home Loans in India

• Home Loan:The most common type of loan to avail for the purchase of any property. You can up to 80-90% of the property market price in form of housing finance.
• Home Renovation Loan :It provides finance for renovating or improving the condition of your home.
• Home Construction Loan:This type of loan is taken to construct a new house.
• Loan Balance Transfer:If you are dissatisfied with your current lender’s service, you can transfer the outstanding balance of your loan to a different lender who offers a lower interest rate and better service. You can even look into the option of a top-up loan on your existing loan after the transfer.
• Composite Home Loan:This type of loan combines financing for both the plot of land on which you want to build a house and the construction into a single loan.

Benefits of Home Loan

• Tax Benefits: A borrower can claim an Income Tax deduction of up to Rs. 1.5 Lakh under section 80C of Income Tax of India 1971 Act. While Section 24B of the Income Tax Act of India allows for a deduction of up to Rs 2 lakh on the interest portion. The income tax deductions are only available after the house has been completed. You cannot claim income tax deductions while the property is being built.
• Tax Benefit on Second Home Loan: If you buy a second home, you will be eligible for an Income Tax deduction under section 24B of the Income Tax Act.
• Home Loan Balance Transfer: It gives you the benefit of a balance transfer to another lender with a lower interest rate.
• Ease to Buy a New Home: It makes it easy to buy a new home with one’s own money because it makes it easier to buy a house because it can be repaid in easy monthly installments.
• No prepayment Charges: It has the highest repayment tenure that goes up to 30 years and by extending the loan tenure one can reduce the EMI liabilities.
• No Need to Pay Rent: It enables you to buy your own home so there is no need to pay rent. It is better to pay EMI for your own home.

Home Loan Interest Rates

• The average home loan interest rates are from 6.5% to 12.00% in India. The rates usually vary from lender to lender, RBI-prescribed repo rate, inflation, economic activities, and many other factors.
• Some banks also give a special privilege to women, bank staff, and senior citizens by providing a 0.05% concession on the home loan interest rate.
• Further, a home loan interest rate can either be fixed or floating in nature. A fixed-rate home loan remains the same for a period specified by the bank. This type of home loan is immune to market fluctuations.
• In the case of floating-rate home loans, the interest rate applicable varies based on the market fluctuations. It may or may not be beneficial for the borrower.

Conclusion

Home loans in India help several individuals and families realize their dream of home ownership. With different kinds of government home loan schemes designed for users, attractive benefits, competitive interest rates, and long repayment tenures have never been easier in a home loan. Understand the eligibility criteria and documentation requirements to make an informed choice and pivot your search toward the right home loan.