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Loan Against Property
A house loan or home loan simply means a sum of money borrowed from a financial institution or bank to purchase a house. Home loans consist of an adjustable or fixed interest rate and payment terms.
People generally take a home loan for either buying a house/flat or a plot of land for construction of a house, or renovation, extension and repairs to the existing house.
The property is mortgaged to the lender as a security till the repayment of the loan. The bank or financial institution will hold the title or deed to the property till the loan has been paid back with the interest due for it.
The interest rates for home loans can be fixed or floating, or partly fixed and or partly floating, suiting the needs of the borrower.
There are also certain tax benefits available on your home loan under the Section 80EE of Income Tax Act. However, the Income tax deduction can be claimed on home loan interest by first time home buyers only.
Types of Home Loans in India
This is the most common type of home loan availed to purchase a house. There are many housings 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.
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.
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.
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.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.
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.
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.
Benefits of Taking a Home Loan
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.
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.
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.
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.
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.
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.
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: