Home loan: meaning, types, benefits, how to apply, interest rates, EMI calculator

What is a home loan?

For most individuals, owning a home is one of their biggest ambitions and is also expensive. Giving such a dream life demands a lot of work on the buyer’s part, and the only way to fit the property into their budget is by taking out a home loan. A home loan can be used to purchase a new home or apartment, the land on which to build it, or even for home renovations, additions, and repairs.

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Home loan types in India

Home loan

It is the most popular home loan used to buy a property. Housing loans are available from a variety of housing financing firms, public banks, and private banks. You may borrow money to buy the home of your choosing and return the loan over time in monthly instalments. You can obtain financing for between 80 and 90 percent of the market price of the home. The residence will be kept by the lender until the loan is fully repaid.

Loan for home construction

If you already own a piece of land and need money to build a house on it, this form of mortgage is what you need.

Loan for home extension

Let’s say you currently own a home and would like to add a room or a floor to it to suit your expanding family. Loans for home extensions might be used to finance this.

Loan for home improvement

If there is a problem with the existing system, a home improvement loan can be used to finance renovations or repairs including painting the inside or outside of the house, improving the plumbing, upgrading the electrical system, waterproofing the ceiling, and more.

Transfer of home loan balance

You can transfer the remaining amount of the house loan to a new lender who provides a lower interest rate and better service if the present interest rate on loan is too high for you or you are dissatisfied with the service provided by your current lender. You can even investigate the potential for a top-up loan on your current one after the move.

Eligibility criteria for home loans

Banks maintain a list of requirements for home loan qualifying. A person’s credit history is the first thing a bank looks at to determine their repayment tendencies. A credit score of 750 or above is often preferable. The following are some more crucial considerations:

Age type of employment
Requirements for the minimum annual salary collateral security margin
Assets, liabilities, occupational stability and continuity
(Resident Indian/Non-resident Indian) status of residency

Procedure of home loan application

Thanks to different channels now available with the development of technology, obtaining a house loan has become simpler than it was previously. To apply for a house loan, you can go to the bank branch, ask about the available possibilities, or do so online. The bank requests the necessary documentation from you when you apply. It starts processing your application, evaluating your CIBIL score, the asset’s worth, determining your eligibility based on your income and debts, and more. The banks determine whether to approve or refuse the loan after examining and confirming all the papers.

Interest rates on home loans

As of March 2021, the average house loan interest rate in India ranges from 6.5 per cent to 12 per cent. The rates often change depending on several factors, including the repo rate set by the RBI, inflation, and economic activity. Some banks additionally offer a 0.05 per cent discount on the interest rate for house loans to older citizens, bank employees, and women. Additionally, the interest rate on a mortgage might be either fixed or variable. For the duration that the bank specifies, a fixed-rate mortgage does not change. This kind of mortgage is unaffected by changes in the market. Home loans with variable rates have an applicable interest rate that changes depending on the state of the market. It could or might not be advantageous to the borrower.

Benefits of obtaining a home loan

The provision to deduct interest and principal payments from your income tax is the main advantage of having a mortgage. You are permitted to deduct up to Rs. 1.5 lakh for principal repayments under Section 80C, Rs. 2 lakh for interest repayments under Section 24B, Rs. 2 lakh for interest repayment under special circumstances under Sections 80EE and 80EEA, and Rs. 1.5 lakh for stamp duty expenditures under Section 80C.
Compared other loan options, the interest rate on a house loan is significantly cheaper. If you run into financial trouble, you might be able to extend your current house loan at a more affordable interest rate than a personal loan to get by.
When you buy a house through a bank, the bank will thoroughly investigate the property from a legal standpoint and determine whether all the paperwork presented is legitimate. You will be less likely to be scammed due to the bank’s diligence assessment. You and your home are protected if the bank authorises the property.
Home loans have a longer payback period than any other type of loan, up to 25 to 30 years. This is because borrowing a sizable loan amount is required to buy a property. The monthly EMIs will be lower if the loan amount and related interest are spread out over a longer term, easing the strain on the borrower.
When you take up a floating-rate mortgage, you can pay off the loan early anytime you have a lump sum available without incurring any prepayment penalties. This will enable you to pay off your mortgage much before the agreed-upon loan term.
For various factors, including the interest rate, service fees, level of customer care, and others, you can switch your house loan from one lender to another.

Calculator for home loan EMI

An EMI calculator, in general, is a straightforward and useful tool that determines the monthly payment due to the lender (bank) under the terms of a loan. You may use our home loan EMI calculator to estimate your affordability in advance by learning what monthly payments you could have to make for a given loan amount. The main loan amount you intend to borrow (P), the length of time (N), and the interest rate are all that are required to utilise the home loan calculator (R).

FAQs

What is EMI?

The term EMI stands for Equated Monthly Instalment, which is the sum you must pay to us on a particular date each month until the loan is fully repaid. The principal and interest components of the EMI are constructed so that in the early years of your loan, the interest component will be considerably bigger than the principal component, while the principal component will be much larger in the latter half of the loan.

How long does a mortgage loan last?

With a minimum duration of 5 years and a maximum tenure of 30 years, home loans are long-term financial products. The length of your personal loan is determined by a number of factors, including the loan amount that the lender has approved for you.

What are the requirements for a home loan?

Anyone with a consistent source of income, including self-employed people and professionals who are salaried, is eligible to qualify for a house loan. When the loan period starts, the borrower must be at least 21 years old, and at the end of the loan or when they reach retirement age, they cannot be older than 65. The particular requirements, such as the minimum and maximum age restrictions, the minimum income level, etc., may vary from one lender to another.

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Housing News Desk is the news desk of leading online real estate portal, Housing.com. Housing News Desk focuses on a variety of topics such as real estate laws, taxes, current news, property trends, home loans, rentals, décor, green homes, home improvement, etc. The main objective of the news desk, is to cover the real estate sector from the perspective of providing information that is useful to the end-user.

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