Home Loan – What is a Home Loan, Benefits, Eligibility and Factors to Consider
What is a home loan?
A home loan is a secured loan used to purchase a home with the property serving as collateral. Home loans offer high-value financing at low interest rates and for long periods. They are reimbursed through IMEs. The borrower becomes the owner of the property after repayment. The Housing Loan, like any other loan, is repaid in monthly installments. Most banks now offer home loans that can help you not only buy ready-made houses, but also help you build a house from scratch. Home loans can also be obtained for renovation or repair purposes.
Benefits of a home loan?
You can deduct interest and principal payments from your taxable income if you have a home loan. The income tax deduction available for interest and capital repayments is the most important benefit of a home loan. Section 80C allows you to claim up to Rs.1.5 lakh in principal repayments, up to Rs.2 lakh in interest repayments, up to Rs.2 lakh in interest repayments under Sections 80EE and 80EEA, as well as up to Rs.1.5 lakh in stamp duty charges. Further tax relief is available with a home loan.
The interest rate on a home loan is much lower than the interest rate on any other type of loan available. If you have a cash crunch, you may be able to top up your existing home loan at a lower interest rate than a personal loan to solve the problem.
Banks review the property from a legal perspective when you apply for a home loan to ensure the documents are valid and the title is clear. This due diligence from the bank will reduce your chances of being scammed. If the bank approves the property, you and your family are safe.
Before applying for a home loan, you can easily calculate your eligibility. You can determine your eligibility using the home loan eligibility calculator available on the bank’s website. Enter some basic information such as your monthly expenses, income, age, value of the property you wish to purchase, and EMIs for other loans. After entering your basic information, click Enter and the Home Loan Eligibility Calculator will calculate the maximum amount you can borrow. So you can apply for a home loan online.
Important factors to consider for a home loan?
Home loan interest rates are determined by the loan amount as well as the borrower’s credit rating. Make sure you understand the type of home loan interest rate that is being offered to you. Unlike a fixed interest rate, which remains constant throughout the term, a variable interest rate can change. Moreover, it is extremely rare to find lenders offering fixed interest rate home loans, and they usually come with additional interest incidences which end up being costly for the borrowers.
Duration is an important variable as it determines the EMI amounts payable each month on the due date. Knowing the exact duration will allow you to plan your finances accordingly. The term of your home loan can be tailored to your preferences. You can adjust the loan repayment schedule according to your income.
A lender will only provide 75-90% of the cost of a property as the home loan amount. The rest of the cost must be paid in advance by you, which is called a deposit.
It pays to select a home loan with a simple application process and minimal documentation. You should ideally choose a home loan that allows for online application and fast disbursements.