Home Loan – An introduction –
A home loan is generally an amount borrowed by an individual from a bank or a Financial institution generally a HFC (Housing Finance Company) to purchase a house or a flat or to purchase a plot and then construct a house or to renovate or extend the existing house. This amount is borrowed at an agreed rate of interest between the lender and the borrower. The rate of interest can be fixed or reducing.
As the property is mortgaged to the bank or HFC therefore home loans are also considered as secured loans. The bank or the HFC will hold the original documents of the property. The documents will be released to the borrower after the successful payment of the entire principle amount and the interest amount as applicable till the closure date.
If an individual is capable enough to buy a particular property without a loan, even, then it is recommended to go for a home loan. In this particular scenario where the buyer has the full amount to buy the property, the buyer can choose to go for a SBI Maxgain home loan wherein he can park his funds in the maxgain loan account and enjoy the liquidity of the funds at zero interest rate.
Duration of a home loan:
Duration of the home loan varies for various banks and HFCs. Some banks have a strict policy of maximum duration of 20 years whereas some has maximum duration of 30 years till the age of 65 years and few banks and HFCs allow it upto 75 years .
Types of home loan:
Home loan can be further divided in to various products as follows:
Tax benefits is one major reason why home loans are popular amongst income tax payers. Home loans consist of two components – Principle amount and Interest amount.
An individual can claim the tax benefits under section 80C on the principle amount paid up to Rs. 1,50,000/- per year
The interest amount paid in a particular financial year is also eligible for tax benefits under section 24B and section 80E up to a maximum deduction of Rs. 2,00,000 and Rs. 50,000 respectively.
To claim the tax benefits on a home loan you should either be a primary applicant or a co-applicant in the home loan application.
Home loan processing fees and other charges:
There are certain charges associated with home loans e.g. – processing fees, legal and technical evaluation fees, notary or stamp duty charges, administrative fees etc.
Generally, the processing fees for banks ranges from 0.25% to 0.75% and in HFCs it ranges between 0.25% to 3% of the loan amount. The legal and technical fees vary for various banks and HFCs and is charged in advance and is generally non-refundable.
Home Loan Insurance is also getting famous among home loan borrowers as it secures the dependants of the applicant from being homeless in any unforeseen situation. There are many riders which can be added on to it e.g. Job loss, Disability, any serious medical disease like a stroke etc.
Home loan transfer – If an individual takes a home loan from a bank or a HFC then it doesn’t necessarily mean that one has to continue the loan till the end of the tenure with the same bank.
If some other bank or HFCs is offering a better rate of interest, then the borrower always has the option to switch the lenders. Most banks do not have any pre-payment charges on reducing rate of interest and hence processing fee is the only additional charge which is incurred.
Important factors which the borrower has to keep in mind while taking a home loan can be summarised as below: