What is Home Loan - Its Important Features and Benefits
- What is Home Loan – Home loans help people to achieve their dream of home ownership.
- A home loan is a secured loan that can be availed from both banks and Non-Banking Financial Companies (NBFCs) for the purpose of buying a residential property.
- Home loans have varying interest rates which are often linked to your credit score. The normal tenure is up to 30 years and the amount has to be repaid in Equated Monthly Installments.
- Tax deductions are possible on both the principal amount and interest component of the home loan amount. This is possible under Section 80C and Section 24 respectively of the Income Tax Act.
Purpose of Home Loans
Home Loans for purchasing, building, renovating, repairing, or redecorating a perfect living space. One can also opt to transfer the existing Home Loan from another lender over to a new lender.
- For the purchase of a new/old residential unit (it may be an independent house/ flat/villa/an apartment etc.)
- For the construction of a residential unit on an existing non-agriculture plot.
- For the extension of the existing residential property with repairs and improvements.
- For the Take-over of a housing loan availed from another bank / FI Completion of the under-construction residential unit.
- For the purchase of solar power panels along with the purchase/construction of the house.
Eligibility for Home Loans
- The applicants must be Indian citizens and NRIs’. Loan eligibility depends on the value of the property and the repayment capacity of the borrower.
Other important factors
- Age
- Co- applicant’s income
- Continuity of occupation
- Credit Information Bureau (CIBIL/Experian, etc.) track record.
However, the sanction of loans to individuals is the sole discretion of the Bank. Here Bank has the right to approve or reject the loan without assigning any reason.
- The minimum entry age for the loan is 18 years and the maximum exit age is up to 75 years.
- Individuals may apply for the loan singly or jointly with other eligible individuals.
Quantum of Loan - The Limit of Loan Amount
- There is no limit on the quantum of the loan amount.
- The maximum loan amount for repairs/renovation is up to Rs.30 lakhs.
Processing Charges
Processing charges are 0.50% of the loan amount subject to a maximum of Rs. 15, 000 plus GST
- The actual Valuation process is applied for the calculation of Stamp Duty / Memorandum registration charges / Legal / CERSAI and Valuation charges.
15 Must Have Documents Required for Home Loan in 2023
Required Documents Are,
- Loan application form.
- 3 photographs passport sized.
- Identify proof
- Residence proof
- Bank Account Statement/Passbook for last 6 months.
- Signature verification by bankers of the applicant.
- Liabilities statement and Personal Assets.
- Property detailed documents
- Salary Certificate (original) from employer. (salaried individuals)
- Form 16/IT Returns for the past 2 financial years. (salaried individuals)
- IT Returns/Assessment Orders copies of the last 3 years. (self – employed professionals)
- Challans as proof of Advance Income Tax payment. (self – employed professionals)
- Proof of business address for non-salaried individuals. (self – employed professionals)
- IT returns/Assessment Orders copies of the last 3 years. (Self – Employed Businessmen)
- Challans as proof of Advance Income Tax payment. (Self – Employed Businessmen)
Home Loans Moratorium Period
- In the case of purchase/ construction, the Moratorium period is 36 months.
- In the case of repair & renovation, the Moratorium period is 12 months.
3. In the case of Composite Home Loans from the date of first disbursement OR up to the period allowed by the Development Authority, the Moratorium period is 48 months.
Repayment
- In the case of purchase/ construction, the repayment period is up to 30 years.
- In the case of repair & renovation, the repayment period is 15 years.
Repayment methods
Equated Monthly Installments (EMI)
- Equated Quarterly Instalments (EQI) For borrowers engaged in agriculture or allied activities, instead of EMI may be permitted.
Step-Up Repayment Method
- For the initial months, the EMI value is set at a value lower than the normal EMI value. Then for the remaining period, the EMI value is set at a level higher than the normal EMI.
- Balloon Repayment Method: lower than normal EMI at the start of the repayment tenure followed by a lump sum amount expected to be available at end of repayment tenureThe flexible Loan Installment Plan (FLIP) Method with the EMI for the remaining period can be at a lower value than normal EMI.
- Bullet payment is possible with lump sum payment during the repayment tenure. Then a downward revision in EMIs for the remaining period is applicable.
Prepayment Penalty
Floating-rate loans
There is no prepayment penalty / take-over penalty if the loan is taken over by other banks/FIs.
Fixed-rate loans
- A prepayment penalty is not required if the loan is repaid from its own verifiable sources.
- A take-over penalty of 2% is charged on the average outstanding balance of the preceding 12 months if the loan is taken over by any other bank.
Guarantee
- A third-party guarantee is not required for Resident Indians
- For NRI applicants, 1 or 2 guarantors of Indian Residents is a must.
Insurance
- Insurance coverage is mandatory. Property should be insured for an actual amount of the property, covering all risks with a Bank clause.
The types of insurance coverage are as below;
- Property Insurance – Safeguard the property against any loss or damages caused by unpredictable natural disasters and damages.
- Liability Insurance or Life Insurance – This is an optional one. This insurance is purely at the discretion of the Borrower.
- However, it is always advisable to get liability/life insurance coverage so that family members don’t suffer in case of any unfortunate event.
- For the benefit of the borrowers, a one-time Liability Insurance premium can be added to the cost of the property so that the burden can be reduced.
- Further, Bank also tied up with various insurance providers so that suitable products can be available to its customers with reasonable premiums
Home Loan Security
- Simple/Equitable mortgage (E.M.) of the residential property suitable interim security is required for the proposed residential unit under construction, suitable interim security is required (till the period of its completion)
- However, there is no need for interim security if a tie-up with the builder (with a tripartite agreement) for the particular housing project exists.
Encumbrance on a proper
- It is a must that during the home search, we must consider properties that are free of encumbrances of any sort.
- Interest rates are important when you apply for home loans. The home loan interest rate can affect the overall EMI that has to be paid. Always keep in mind the interest rates whenever there is a need to apply for a housing loan.
The interest rates of Important Home Loan Banks
S.NO BANK NAME INTEREST RATE
1 ICICI HOME LOAN 8.40% – 9.45%
2 SBI HOME LOAN 8.05% – 8.55%
3 AXIS BANK HOME LOAN 7.60% – 8.05%
4 HDFC BANK HOME LOAN 8.60% – 9.50%
Types of Home Loans - What is Home Loan
Individual Home Loans
- To buy fresh/resale property or to construct a house.
Home Improvement Loans (HIL)
- Home Improvement Loans for internal and external repairs and restructuring.
Home Extension Loan (HEL)
- This type of loan will help to add more space to the existing home for growing needs. Whether it is an extra bedroom for the children, a home office, or its very own library room. So this loan lets to carve out that extra space with easy financing.
Top-Up Loan
- Customers can avail of a Top-Up Loan on their existing Home Loan at attractive interest rates. They can avail of a top amount of up to Rs 50 lakh.
Balance Transfer
- Transfer your current Home Loan over to another Bank with the Balance a Transfer facility and enjoy all the perks that come with it. Balance Transfers can be initiated online with a simple and easy digital process.
What is Home Loan and Benefits of a home loan
1. Tax benefits on home loans
- The government of India provides tax deductions on the principal as well as interest paid on the home loan. The individual can claim a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax of India 1971 Act in a financial year.
- Section 24B of the Income Tax of India Act allows a deduction of up to Rs 2 lakh on the interest portion.
- These deductions are only available after the construction of the house is completed. The people can’t claim income tax deductions while the property is under construction.
2. Enjoy capital appreciation
The People can get benefited from the rise in prices of the property over time.
3. Saves from paying rent
As the house rent is quite high they put a heavy strain on the monthly budget. It is always better to pay the EMIs and own a house of their own.
4. Tax benefits on the second house
In the case of the second house, the people are eligible for a claim a deduction for the entire amount of housing loan interest paid under Section 24B of the Income Tax Act.
5. No prepayment charges
Whenever people have surplus money, they can utilize it for making a partial payment toward a home loan and lower the burden. There will be no prepayment charges.
6. Balance Transfer Facility
In the case of the home loan people have the facility to transfer a home loan to a different lender if he is giving a home loan at a lower interest rate.
7. High repayment Tenure
The possibility of the longest repayment tenure helps to reduce the burden of equated monthly installments by extending the tenure. House loan EMI calculator to know how EMI changes as you change your home loan tenure
Go ahead and apply for a Home Loan from a nearby reputed bank or through the website.
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