Home Loan – Meaning, Types, Eligibility, and Features
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
This is the most common type of home loan availed to purchase a house. There are many housing 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.
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.
Home Loan Interest Rates
The average home loan interest rates are from 8.5% to 11.00% 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.
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