Buying your dream home is not too far away because you can opt for a home loan to finance your house purchase needs. Home loans are very popular and with many lenders offering home finance, getting this loan has become very easy.
But before you opt for a home loan, there are a few things you need to know about the very nature of these loans. Knowing these facts can help you plan your loans/
Here are things to consider before taking a home loan:
- Fees and charges:
The loan interest is not the only charge that you will have to pay on a home loan. You will also need to pay loan processing fees. There are no charges for pre-payment or part repayment of a home loan which means you can save funds if you pre-pay parts of your home loan.
- Loan tenure:
The home loan tenure can be fixed by the borrower between the range specified by the lender. However, it is important to note that the home loan instalment depends on the loan tenure. The longer the loan tenure, the lesser is the instalment. However, in such a case, the total interest amount paid out on the loan is higher. On the other hand, a lower repayment period will mean a high EMI which may not fit in your budget.
- Loan to value ratio:
A loan to value ratio means the percentage of the house that is given out as a loan. Lenders do not give the entire value of the house as a loan. The loan amount ranges between 65% to 80% of the market value of the property.
- Secured loan:
A home loan is a secured loan. This means the house purchased is attached to the loan. In case of a continuous loan default, the lender can repossess the property and dispose it off to recover the loan instalments. However, this is done as a last resort.
- Tax benefit:
There are two tax benefits for a home loan. The principal repaid gets a deduction under Section 80C up to Rs. 1,50,000. Depending on the use of the home, the interest paid gets a deduction. In case the home is used for the borrower’s residence, then the interest payment deduction is restricted to Rs. 2,00,000. If the property is given out for rent, the entire interest payment can be claimed as a deduction.
- Joint application:
The total loan amount issued depends on the income of the borrower. To increase the eligible loan amount, you can make a joint application. In case of a joint application then the incomes of all the joint applicants is considered while deciding the loan amount.
- Existing loans:
Most lenders look at the existing loans that a borrower has before accepting a loan application. Generally, lenders don’t accept loan applications for borrowers whose outstanding loans are around 50% or more of their monthly income. This is why it is beneficial to pay off as many existing loans as you can before opting for a home loan.
- Pradhan Mantri Awas Yojana:
The Government has come out with the Pradhan Mantri Awas Yojana to give benefits to first time home buyers. This scheme provides for interest subvention where there are income linked interest rate benefits. You can check with the lender for benefits under this scheme before you take a home loan.
Comments are closed.