What Is Home Loan?
It is a loan or mortgage taken out by an individual to purchase a home or a house, usually from a bank or company that lends money. The borrower must repay the loan amount with interest in Easy Monthly Instalments (EMI) over up to 30 years, depending on the nature of the loan.
How Do Home Loans Work?
It is possible to purchase your dream home comfortably with the help of a home loan. Typically, lenders will cover 75-90% of the cost of the home. And you will have to make an initial payment (down payment) to cover the remaining balance.
Loans for purchasing homes provide ample funds at low-interest rates and have long repayment terms. Furthermore, the government of India offers various housing schemes that provide benefits, such as the PMAY interest subsidy.
Types of Home Loans
A Simple Home Loan
Home loans are the most common type of loan consumers take to fulfill their dream of owning a home. But what is the purpose of a home loan? This type of loan enables you to borrow funds from the lender to purchase a property of your choice. The loan may then be repaid to the lender in monthly installments following the purchase. A home loan can be approved for up to 80%-90% of the cost of the property if you meet the eligibility requirements.
Balance transfer of a home loan
It is possible to switch to a different lender if you have already taken out a Home Loan and are currently repaying it. Many borrowers do this when they can obtain a Home Loan at a lower interest rate from another lender. But before you transfer your home loan, you should consider the actual savings because the new lender might have additional fees such as processing fees.
Awas Yojana of the Pradhan Mantri
PMAY provides first-time homeowners with credit-linked subsidy schemes (CLSS) to obtain Home Loans at subsided interest rates. If you choose to do this, you may be able to save up to Rs 2.67 lakh on your home loan. Many benefits are available under this facility, such as an extended repayment period of 20 years.
This subsidized loan may only be offered by banks registered under the scheme. If you are a first-time homebuyer and are looking for a mortgage lender. You should consider one registered under this PMAY scheme to take advantage of the benefits.
Loans for home construction
It is possible to obtain a home construction loan if you own a piece of land and intend to build your dream home on that property. Home construction loans do not involve a lump-sum payment of the loan amount made by the lender but rather are disbursed in installments depending on the progress of the construction process. Construction loans are typically approved based on the approximate cost of construction.
Home improvement/extension loans
The most common type of home loan is a home improvement or extension loan. You may be able to obtain a home extension loan if you already own a home but want to add a room or maybe a floor to it. Home improvement or renovation loans are also used to renovate existing houses.
It is possible to spend lakhs of rupees on a home extension or improvement. Even if you do not have adequate savings, you can take advantage of these loans to expand or renovate.
Benefits of Taking a Home Loan
Benefits of taxation
You can deduct interest and principal on a home loan from your income tax. This is one of the most significant advantages of a home loan. It is possible to claim up to Rs.1.5 lakh for principal repayments under section 80C, up to Rs.2 lakh for interest repayments under section 24B. For interest repayments in exceptional circumstances under sections 80EE and 80EEA, and up to Rs.1.5 lakh for stamp duty deductions under section 80C.
Long-term repayment period
In contrast to other loans, home loans are typically repaid over a more extended period, such as 25-30 years. This is due to the considerable amount of money one will need to borrow to purchase a house. By spreading the loan amount and the interest rate over a longer term, EMIs will be lower, reducing the borrower’s burden.
Prepayment is not penalized.
You may make prepayments towards a floating-rate home loan with a lump sum available without incurring a penalty. This will allow you to settle the loan early and avoid paying the penalty.
Compared with other loan types, the interest rate on a home loan is much lower. Whenever you encounter a cash shortage, you may be able to obtain a top-up on your existing home loan at a lower rate of interest than a personal loan.
Property due diligence
To purchase a house, you will have to go through a bank. The bank will conduct thorough legal checks on the property and verify whether all the documentation provided is valid.
You will be less likely to become a victim of fraud due to this due diligence check performed by the bank. The fact that the bank approves the property ensures the safety of you and your house.
Facility for the transfer of balance
Transferring a home loan from one lender to another may include the interest rate, fees, customer service experience, and others.