- There are a variety of home loans available. They are:
- HOME PURCHASE LOAN
This is the common loan for purchasing a home.
- HOME IMPROVEMENT LOAN
This loan is given for undertaking repairs, renovations and/or upgradation to your home.
- HOME CONSTRUCTION LOAN
This loan is available for the construction of a new home.
- HOME EXTENSION LOAN
Home extension loans are given for expanding or extending an existing home. For example, addition of an extra room, etc.
- HOME CONVERSION LOAN
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.
- LAND PURCHASE LOAN
This type of loan is sanctioned for purchase of land for home construction.
- BRIDGE LOAN
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 LOAN
Balance Transfer loans help you pay off an existing home loan by availing a new loan from another willing lender institution.
- REFINANCE LOAN
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.
- STAMP DUTY LOAN
This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of a property.
- LOAN TO NRIs
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.
- The EMI consists of the principal amount and the interest on the principal amount. It is calculated by taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum. The EMI may be subject to change when interest rate changes or a part-payment of the Loan is made.
- The EMI will be due on a fixed date each month. This date will be notified when your loan is disbursed.
- Pre-EMI interest is the interest on the loan amount disbursed by the Bank. It is payable every month from the date of each disbursement until the commencement of the EMI payments.
- 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.
- A floating rate home loan is one where the interest rate on the loan may change during the loan period. In other words, the rate may go up or down in the future after you have taken the loan. Typically the floating rate is based on a certain benchmark rate that is used by the lender. As the benchmark rate changes, the floating rate on your home loan also changes.
- A fee charged to process an application for a loan, such as a home mortgage from a lender or mortgage broker. Loan application fees are charged to cover some of the costs involved in processing the application including credit checks, property appraisals and basic administrative costs.
- 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.
- Yes, it is mandatory to have a co-applicant. If someone is the co-owner of the property in question, it is necessary that he/she also be the co-applicant for the Home Loan. If you are the sole owner of the property, any member of your immediate family can be your co-applicant.
- To qualify for a home loan, most of the lending institutions in India require you to be:
- An Indian resident or NRI
- Above 21 years of age at the commencement of the loan
- Below 65 when the loan matures
- Either salaried or self employed and
- Worthy of credit facility.
- Different lenders use age differently in loan eligibility determination. Most lenders lend only to people between 18 and 65 with the max age limit capped at the retirement age. Lenders also use age as a factor in determination of the max loan amount given.
- Repayment period options range generally from 5 to 20 years.
- An entity that lends money to a borrower for the purpose of purchasing a piece of real property. By accepting a mortgage on the real property, the lender creates security in the full repayment of the loan in the future.
- Paid by the buyer to the lender, to cover the costs of processing their loan application. In some cases, the buyer would pay the lender the application directly and prior to closing, while in other cases the fee is part of the buyer’s closing costs payable at closing.
- A company, individual or institution that originates mortgages. Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages. After a mortgage is originated, a mortgage banker might retain the mortgage in portfolio, or they might sell the mortgage to an investor. Additionally, after a mortgage is originated, a mortgage banker might service the mortgage, or they might sell the servicing rights to another financial institution. A mortgage banker’s primary business is to earn the fees associated with loan origination. Most mortgage bankers do not retain the mortgage in portfolio.
- A loan given by a bank, mortgage company or other financial institution for the purchase of a primary or investment residence. In a home mortgage, the owner of the property (the borrower) transfers the title to the lender on the condition that the title will be transferred back to the owner once the payment has been made and other terms of the mortgage have been met. A home mortgage will have either a fixed or floating interest rate, which is paid monthly along with a contribution to the principal loan amount. As the homeowner pays down the principal over time, the interest is calculated on a smaller base so that future mortgage payments apply more towards principal reduction as opposed to just paying the interest charges.
- About 5-20 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:
Interest paid on the home loan
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-construction 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).
Principal repayment of the home loan
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?