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Housing Loans 101: Everything You Need to Know

Clix November 20, 2019

Owning a house is one of the foremost items on every person’s wishlist. However, since this inevitably calls for a big-ticket investment, most people face some trouble in making this dream a reality. Owning a house is a dual investment because it allows you to get the benefit of capital appreciation on the property itself and, at the same time, lets you save on rent that you would normally have to pay on a rented property. In addition to this, a house ensures lifetime security and serves as an excellent investment. Owing to sky-high prices – especially in metropolitan cities – it might be hard for a lot of people to buy a house through their own resources, putting them in the dire position of seeking out a housing loan.

In India, the mortgage sector is considered one of the highest contributors in the insurance and banking industry. A report from Morgan Stanley claimed that India’s property market sales are expected to grow at a 14% compound annual rate between 2016-2020 and at 18% between 2020-2025. The mortgage industry showcases a similar growth potential as most individuals prefer purchasing a real estate property with a mortgage loan.

What’s more is that the government’s focus on affordable housing has also increased with the implementation of Budget 2019. Several reforms are being taken to boost the number of houses being formed in rural areas, reduce the time taken for the completion of these properties, promote rental housing, create a dedicated fund, and increase annual tax exemption.

What You Need To Know About Housing Loans

Home loans primarily come in many forms: the most popular ones are fixed 30-year and 15-year periods. Some can be as short as five years, and some can be as long as 40 years. The only benefit of stretching the tenure that much is that it reduces the monthly instalments.

With a fixed-rate home loan, the borrower pays the same interest rate for the life of the loan. The interest rate and the monthly principal don’t change from the first payment to the last since it’s not affected by market interest rates at all.

On the other hand, with an adjustable-rate home loan, the interest rate is fixed for the initial term and then eventually fluctuates as per the market interest rates. Here, the initial interest rate is often below the market rate, which makes it more affordable. However, the only shortcoming here is that if the market rate increases later on, then the borrower may not be able to afford the higher monthly instalments.

Long Tenures

A home loan is one of the only loans wherein you can enjoy an extended repayment plan, typically ranging from 10 to 35 years. This long tenure implies the need for small monthly instalments, thus making it far more feasible to avail the loan. Besides, if you’re sure of a rise in your income, then you have the option to opt for a Step-Up Repayment Plan, where your loan EMI will keep increasing as time progresses. This allows you to repay the loan faster.

Tax Benefits

To enable more citizens to buy and live in their own house, the Government of India offers several tax benefits on the repayment of the interest as well as on the principal amount. An individual can now claim a deduction of up to Rs. 1.5 lakh on the principal amount and up to Rs. 2 lakhs on the interest paid towards the home loan in a financial year. Along with this, Budget 2019 also allows for additional deduction of Rs 1.5 lakh for interest paid on loans. This hike is only applicable for loans taken up to 31st March 2020 for a purchasing an affordable house up to Rs 45 lakh in value.

Good Credit Mix

Certain aspects play a key role in maintaining a good credit score. These include payment history, length of credit history, amounts owed, new credit enquiries, and diversified credit portfolio. Now, considering that you have a credit card, personal loan, or a car loan under your name, a home loan will add to your credit mix. This helps improve your credit score significantly. However, in order to maintain this score, you must also ensure timely repayments without fail.

Home loans are an excellent way to buy the house of your dreams. Make sure to consider your repayment abilities before filling out the application to ensure a smooth loan process. If you wish to make this process completely seamless and hassle-free, then just contact us at 1800-200-9898 or reach out to us at hello@clix.capital!

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