“A home is a personal asset that everyone dreams of owning at some point in their lives.”
Home loans provide aspirants with a golden chance to have their very own slice of real estate since the entire sum doesn’t have to be provided in one go. Home loans are the most common form of debt and come with lower interest rates as compared to other loans. To clear up a common misconception – home loans are not available just for the purchase of a house. They can also be used to buy land or renovate an existing property. Of course, there are certain lending norms attached to the granting of a home loan.
How does a home loan exactly work?
Home loans generally range from 10 to 30 years, with two main types of home loans in particular – fixed and floating interest rate. In a fixed interest rate scheme, the rate of interest and the periodic payments stay the same throughout the life of the loan. Meanwhile, when it comes to a floating interest rate, the interest rate and the periodic payments may vary.
As a means of security, the property is mortgaged to the lender until the entire repayment of the loan. The financial institution will hold the title of the property till the time the loan has been repaid along with the due interest rate. Typically, a financial institution will lend between 75-80% of the agreement value and the borrower has to provide the rest from personal resources.
Now, let’s talk about a few most compelling and common reasons for taking up a home loan:
One of the most significant advantages of taking a home loan is tax benefits. They are primarily of two kinds – one on the repayment of the principal amount and the other based on the interest payment. Principal repayment allows one to avail tax deductions on the sum of the actual amount that they have borrowed. However, the deduction cannot exceed Rs 1.5 lakh and is deducted from the total gross income. The interest payment allows for an interest deduction on the amount that they have borrowed to purchase or construct a property. This deduction is valid for the construction and repair of an existing property and has an upper limit of Rs 2 lakhs.
Greater Credit Eligibility
Once you have completed the mortgage payment and have achieved the sole ownership of your house, you can apply for a loan against it. Having an expensive asset will make it easier for banks to give you a loan. That’s where your house, an illiquid asset, can be conveniently put into use. Furthermore, the size of this asset will play a huge role in determining your eligibility for a loan. The ownership of a house will make you a good candidate for your future requirement of a loan as well.
Out of all the various types of loans, a home loan has the longest repayment tenure that can go up to 30 years. Hence, it gives you the option to reduce the burden of equated monthly instalments by effectively extending the tenure. Without an excessively high EMI, you can smoothly take care of all other financial requirements and live stress-free.
Due Diligence of Property
Before loaning the amount to you, a financial institution will meticulously observe and go through all the paperwork of the project. This is to ensure that the property is entirely legal and also free from any kind of dispute. Due diligence is often a stringent and formal procedure that entails a thorough inspection of the property and the builder. This will be vastly helpful since it certifies that your investment is a safe one.
Now, we know that taking a home loan can often seem like a daunting process as it involves many factors such as finding the right loan, getting a good rate of interest, different kind of fees, and documentation. Hence, let’s discuss a few FAQs to help you attain a clear picture.
What collateral can I provide?
Lenders typically ask for some kind of security in the form of existing assets, life insurance policies, guarantee from 1 or 2 people, etc. These documents and details are taken in case the loan are not paid back.
What are the costs involved in taking a home loan?
Apart from an EMI, there are several other charges that have to be paid when applying for a home loan – which depends on lender to lender. There could be a processing fee of about 0.5-1% of the loan amount, which some lenders can waive. For some of the high-value properties, two valuations are done, and the lower of the two is considered for loan sanctioning. The lenders may term it as technical evaluation fee.
Can I pre-close the loan ahead of schedule?
Yes, it is possible to pre-close the loan ahead of its original tenure. If you have availed a floating interest rate, you will face no extra charges for it. However, if you are on a fixed rate, there may be a charge applicable.
Choosing the best financial avenue to attain a home loan is an important step in securing your dream house. That’s where Clix Capital comes into the picture! From receiving guidance to crafting personalised repayment plans, we’re fully equipped to help your dream of buying a house turn into a reality.