There are a variety of home loans available. They are:
This is the common loan for purchasing a home.
This loan is given for undertaking repairs, renovations and/or upgradation to your home.
This loan is available for the construction of a new home.
Home extension loans are given for expanding or extending an existing home. For example, addition of an extra room, etc.
Available for those who have financed the present home with a Home Loan and wish to purchase and move to another home for which some additional funds are required. Through a Home Conversion Loan, the existing loan is transferred to the new home, including the additional amount required, eliminating the need for pre-payment of the previous loan.
This type of loan is sanctioned for purchase of land for home construction.
The Bridge Loan is designed for people who wish to sell the existing home and purchase another. The bridge loan helps finance the new home, until a buyer is found for the old home.
Balance Transfer loans help you pay off an existing home loan by availing a new loan from another willing lender institution.
This loan helps you pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present home.
This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of a property.
This loan is tailored for the requirements of Non resident indians (NRIs) wishing to build or buy a home in India. These loans are provided by eligible financial institutions in accordance with the guidelines issued by Reserve Bank of India from time to time.
EMI (Equated Monthly Installment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of interest due as well as a portion repayable towards the principal.
To qualify for a home loan, most of the lending institutions in India require you to be:
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Interest rates vary from institution to institution and presently range from 9% to 12.5 % for floating interest rate & 11.25% to 14% for fixed interest rate (for loan amount below 20 lakhs). The interest on home loans in India is usually calculated on monthly reducing balance. In some cases, daily reducing basis is also adopted.
In this system, the principal, for which you pay interest, reduces at the end of the year. Thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender through EMIs paid during the year. This means the EMI for the monthly reducing system is effectively less than the annual reducing system.
In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system.
Calculate the total amount payable under the different loan options available for a fixed loan period and amount. The loan under which minimum total amount is payable will be the cheapest source of funds.
Fixed rate of interest means that the rate of interest remains unchanged for the specified duration of the loan. This means you do not benefit, if rates of interest drop in the market. Similarly you do not lose if rates of interest increase. Under fixed home loan rates also, banks/HFCs retain the right to increase the rate of interest after the prescribed interval. This provision is mentioned in the loan agreement. This is known as reset clause in the fine print.
This is the rate of interest that fluctuates according to the market lending rate. This means you stand the risk of paying more than you budgeted for in case the lending rate goes up.
Home loans usually attract following extra costs:
Repayment period options range generally from 5 to 20 years.
Usually, most companies give home loan up to a maximum of 85% of the cost of the house. Balance 15%, sometimes called 'seed money', has to be provided by the loan applicant upfront. The amount, for which the applicant is eligible, is determined by the age, income, no. of dependents, monthly outgoing and repayment capacity. This varies from case to case.
In most cases, the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some institutions may ask for additional security such as life insurance policies, FD receipts and share or savings certificates.
Some institutions ask for 1 or 2 guarantors.
About 3-15 days.
On an average, loans are disbursed within 3-15 days after satisfactory and complete documentation and completion of all relevant procedures, including proof that 15% of the cost has been paid upfront to the seller of the property.
Most institutions are willing to consider the joint incomes of the applicants for deciding the loan amount. Some institutions do not require the co-applicants to be co-owners of the property to be purchased.
Both principal as well as interest of home loans attract tax benefits. With effect from 1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax Act 1961:
As per Sec 24(b) of the Act, a deduction up to Rs. 150,000 towards the total interest payable on the home loan towards purchase / construction of house property can be claimed while computing the income from house property. (The deduction stands reduced to Rs. 30,000 in case of loans taken prior to March 1, 1999). The interest payable for the pre-acquisition or pre-contruction period would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed.
Please remember that in case of self occupied property, this deduction is allowed only for one such self - occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).
As per Section 80C along with section 80CCE of the Act, the principal repayment up to Rs. 100,000 on your home loan will be allowed as a deduction from the gross total income subject to fulfillment of prescribed conditions.
A loan that enables elderly homeowners, to use their home's equity without selling their home or moving from it. A leading institution makes a check out to the homeowners each month. This payment is really a loan against the value of a home.
The general consensus seems like if you can afford a 15-year fixed mortgage, you should go for it. The interest rate will be lower, you own your home in half the time, and the payments aren't actually that much higher. But what if you just look a 30-year fixed mortgage and had the discipline to pay enough extra each month to equal the 15-year payment ?