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A home loan is an amount of money that someone borrows from a financial institution to purchase or build a house. Such loans are also used for reparations, renovations, and expansion of an already existing property. This is a form of secured loan in which the purchased property is lent out to the bank or the lending entity until the borrowed amount is repaid along with the interest. The home loan interest rates in India are quite low and start from 7.90% p.a. and the period of your loan can be increased to 30 years.
The features of home loans and benefits can differ according to the lenders and loan schemes. Some of the general features and benefits are as follows:
A home loan can stretch for as long as 30 years. Hence, it is a long-term commitment and so, home loan interest rates become important to look at. The interest rates decide the loan amount and also the repayment tenure. The banks and other financial institutions often offer pretty attractive and reasonable home loan interest rates. This is to make home loans more accessible and affordable than personal loans.
The home loan repayment tenure usually extends up to 30 years. However, this figure depends on the lender, the chosen scheme and the borrower’s repayment capacity. As a long tenure calls for a long-term commitment, so, the lenders usually provide you with an option of prepayment or foreclosure of the outstanding amount at any time you want. If the borrower can manage to assure the lender of timely loan repayment, then they could get the chance of picking a loan repayment tenure that suits their preferences.
The home loan EMIs (Equated Monthly Installments) consist of the following components: the principal amount and the interest. Under Section 24 of the Income Tax Act, 1961, you can claim the interest paid for a year as a deduction up to a sum of at most INR 2 lakhs.
Under Section 80C of the Income Tax Act, 1961, the principal component of your home loan EMI paid for a year can be claimed as a deduction. To claim this deduction, you cannot sell the purchased property within 5 years of possession.
The home loan borrowers enjoy an additional tax deduction of up to INR 50,000 and INR 1.5 lakhs under Section 80EE and Section 80EEA, respectively. To claim tax benefits under Section 80EE:
To claim tax benefits under Section 80EEA:
Home loan balance transfer is a service where the unpaid loan amount can be shifted to another lender, who provides lower home loan interest rates or better terms for loans. The new lender pays the previous lender the entire unpaid loan amount. Then, the borrower pays the EMIs at the new rate to their new lender. You can easily calculate your EMI with the help of an online home loan emi calculator.
If you require money over and above your current home loan, then you can make use of the top-up loan facility. This is an additional amount that can be availed over and above your existing home loan. Such a facility is not offered to all borrowers due to several factors taken into account, like the repayment capacity, credit records, etc.
Housing Finance Companies (HFCs) offer home loans for various purposes. Before you apply for any type of home loan, assess your requirements so that you end up with a suitable home loan scheme. Some of the types of home loans available are given below:
Among all the home loans, this is the most common one. It is availed mostly to purchase ready-to-move-in properties, pre-owned houses/resale properties, and under-construction properties. RBI guidelines state that the lenders would offer a loan-to-value (LTV) ratio of up to 75-90% of the total property value.
This is the perfect option for individuals who wish to buy a plot of land for either investment or for constructing a home. In this type of loan, your first disbursement will be made towards the purchase of the plot. The following payments would depend on the stages of construction of the home.
This is available for individuals who want money for the construction of a house. The loan will be granted to you if you happen to own a plot of land and have a plan to construct a house on it. Just like in the case of a composite loan, here also the disbursement will depend on the stages of construction of the home.
You can avail this type of loan if you want to renovate a home or repair an existing home. This loan’s interest rate is similar to that for a regular home loan. But, the loan tenure is shorter than a regular home loan.
This is for all the people who need funds to add more constructive space to their home. In this loan, the financial institution will lend 75-90% of the construction estimate based on the loan amount and LTV ratio.
This is a short-term home loan and is very suitable for all those who want to buy a new home with the sale proceeds of their previous home. It helps in narrowing the gap between the new house purchase and the sale of an existing home.
This one is similar to the home loan overdraft facility. The borrower’s home loan account remains linked to their bank account in this type of loan. If any amount deposited in the account is over and above the EMI amount, then it is used as prepayment to the loan amount. Hence, this helps you to save on the interest amount.
This is a type of home loan wherein the borrowers pay lower EMIs in the initial years of the tenure. But, you can increase the EMI amount over time. There is also a provision for increasing the EMI over time. This, in turn, makes the loan affordable for all the young people who have just started earning.
You will find two types of Home Loan Interest Rates. They are as follows:
For fixed-rate home loans, the rate of interest applicable when the loan is disbursed remains constant for the entire loan period. Since the interest rate remains unchanged, the loan EMIs remain constant. However, the interest rate for a fixed rate home loan is usually 1% – 2.5% higher than the floating rate. In addition to that, at any time during the loan tenure, if the interest rate decreases, then the fixed interest rate will stay unchanged. Hence, you will receive no benefits from the reduced EMIs.
For a floating rate home loan, the interest rate will not stay fixed during the loan tenure. Such an interest rate consists of two parts – index and spread. Index is the benchmark rate (like the Base Rate, Repo Rate and Marginal Cost of Funds based Lending Rate – MCLR). This benchmark rate reflects the condition of the market. Spread is the additional amount added by a bank to cover for the credit risk, profile mark-up, and so on. Spread depends on the lender and generally remains constant throughout the tenure. However, the index keeps changing according to the RBI policies and other external factors that cause the home loan interest rates to differ. An increase in the index will lead to an increase in the home loan rates and the EMIs, and vice-versa.
Generally, the floating interest rates tend to be cheaper than fixed interest rates. Besides, there will be mandatory prepayment or foreclosure charges for people who take up floating interest rate home loans, as per the RBI.
| Sl. No. | Fixed Interest Rate | Floating Interest Rate |
| 1. | The interest rate is higher. | The interest rate is lower. |
| 2. | Financial market conditions do not affect. | Changes in the financial market do affect. |
| 3. | The EMIs are fixed. | The EMIs change according to the interest rate or MCLR. |
| 4. | Budget Planning is possible. | Difficult to plan budgets or manage financials. |
| 5. | Gives security. | It creates savings. |
| 6. | Ideal for short or medium-term loans, i.e., 3-10 years. | Ideal for the long term, i.e., 20-30 years. |
| 7. | Low risk. | High risk. |
| Bank Name | Fixed Interest Rate | Floating Interest Rate | Processing Fee | Pre-Closure Charges | Loan Amount | Tenure |
| ICICI Bank Home Loan | 9.9% – 10.25% | 9.15% – 9.6% | 0.50% – 1.00% of the loan amount or INR 1,500, whichever is higher | Nil (Floating Rate Loans) 2% (Fixed Rate Loans) | INR 5 lakhs to INR 10 crores | 3 to 30 years |
| State Bank of India Home Loan | – | 8.7% – 9.1% | Up to INR 10,000 | Nil | – | 1 to 30 years |
| HDFC Bank Home Loan | 9.3% – 10.05% | 8.8% – 9.55% | 0.50% or INR 3000, whichever is higher | Nil (If Paid from own sources) 2% (If refinanced) | INR 5 lakhs to INR 10 crores | 1 to 30 years |
| Axis Bank Home Loan | 12% | 8.85% – 9.1% | Up to INR 10,000 | Nil (Floating Rate Loans) 2% (Fixed Rate Loans) | INR 5 lakhs to INR 10 crores | 1 to 30 years |
| Dewan Housing Finance Ltd. (DHFL) | – | 9.0% – 11% | INR 5,000 to INR 20,000 (depends on the loan amount) | Rs. 5,000 + GST | Up to INR 30 lakhs or above* (90% of the property value) | Up to 25 years |
| Indiabulls Home Finance | 9.25% – 11.2% | 8.8% – 11% | 0.5% -1% for home loans above INR 30 lakhs and INR 10,000 for the rest | Nil (Floating Rate Loans) For fixed rate: 1. Nil (If Paid from own sources) 2. 2% (If refinanced) | INR 2 lakhs to INR 3 crores | 1 to 30 years |
| LIC Housing Finance Home Loan | – | 8.7% – 9.05% | 0.5% of the loan up to a maximum of INR 10,000 | Nil | INR 30 lakhs to INR 5 crores | 5 to 30 years |
| PNB Housing Finance | 8.99% – 11.5% | 9.5% – 12.0% | 0.35% of the loan amount (minimum of INR 2,500 and maximum INR 15,000) | Nil (Floating Rate Loans) For fixed rate: 3. Nil (If Paid from own sources) 4. 2% (If refinanced) | INR 8 lakhs (minimum) | 1 to 30 years |
| Bank of Baroda Home Loan | – | 8.65% – 11.25% | INR 7,500 (Fixed) | Nil | INR 1 lakh to INR 2 crores | 30 years |
| Aditya Birla Capital Home Loan | – | 9.0% – 12.5% | INR 5,000 to INR 10,000 (depends on the loan amount) | Nil (Floating Rate Loans) 2% (Fixed Rate Loans) | INR 20 lakhs to INR 10 crores | 1 to 30 years |
A home loan EMI calculator is an online calculator that will give you an estimate of your monthly installments to be paid for the loan tenure. You can avail of several free-of-cost home loan EMI calculators all over the internet. An EMI calculator for a home loan will benefit you in the following ways:
The details to input in an EMI calculator for a home loan are – principal amount, loan tenure and interest rate.
| Sl. No. | Eligibility Criteria | Requirements |
| 1. | Age | Minimum: 18 years Maximum: 70 years |
| 2. | Nationality | The applicant must be any one of the following: · Resident Indian · Non-Resident Indian (NRI) · Person of Indian Origin (PIO) |
| 3. | Net Annual Income | INR 5-6 lakh or more (depends on your type of employment) |
| Minimum Salary | INR 25,000 per month (depends on the lender and the location) | |
| 4. | Employment Status | The applicant could be any one of the following: · Salaried employee · Self-employed |
| 5. | Work Expertise | 2 years or more |
| 6. | Business Continuity | 3 years or more |
| 7. | Residence | The applicant must have any one of the following: · Permanent Residence · The rented residence where he/she has lived for at least a year before applying for a home loan |
| 8. | Credit Score | Good Credit Score of 750 or more. Should be obtained from a recognized credit bureau. |
| 9. | Loan-to-Value (LTV) Ratio | At most 90% of the property’s value |
Note: These values could vary from one lender to another.
Home Loans generally have an entire list of documents that are needed to be submitted by the applicants to the lenders. The borrower must be careful about submitting these documents since even one missing document could lead to rejection of the application. The documents are mostly the same for all lenders, but a few requirements could depend on the loan scheme you choose, credit score, etc. The general documents required in the home loan application are as follows:
This is a facility that allows the borrowers to transfer the outstanding home loan amount to a new lender for a better (lower) interest rate or better terms of the loan. More or less, all lenders offer this facility. It is advisable to perform a cost-benefit analysis before you proceed with a home loan balance transfer. You simply need to calculate the difference between the interest rates offered by the two lenders, the unpaid loan amount and the remaining loan tenure.
This is not ideal for borrowers with a low outstanding loan amount, if just a few repayment years are left or the difference in the interest rate would not bring in any savings. Also, mind the processing fee charges that the new lender would charge for your balance transfer.
Home loan prepayment refers to when a borrower prepays their outstanding home loan amount partly before the completion of the loan tenure. This would help in decreasing your loan principal amount that would, in turn, reduce your EMI amount. If the borrower does not have any issues regarding the continuation of the current EMI amount, then they can ask the lender to reduce the loan tenure instead of reducing the monthly installments.
On the other hand, home loan foreclosure refers to when the borrower has fully prepaid the outstanding home loan amount in a single payment before the end of the tenure.
Earlier, lenders would levy prepayment penalties and foreclosure charges on floating rate home loans. However, RBI has now banned that practice. But, some lenders still charge it in case of fixed-rate home loans.
Some home loan lenders charge fixed interest on home loans and some adjustable interest rates. Fixed interest rates are considered desirable for shorter tenured loans, whereas floating is optimal for longer tenure loans. Some lenders also sell hybrid home loans where the borrower can take advantage of both fixed and floating interest rates.
The time required for the disbursal of home loans varies from bank to bank. Loan approval and disbursal typically take about 10–15 days. Pick a good home loan company that takes less time and doesn’t cause undue delays in the processing of home loans.
The eligibility criteria for home loans differ from one lender to another. An individual’s usual home loan eligibility is determined by their age, income, job profile, and stability of the borrower, credit history, etc. Make sure to use the home loan eligibility calculator to ensure if you are or are not eligible for the home loan.
Loan companies charge a range of extra fees, like the processing fee, prepayment or foreclosure fee, etc. Before making the final decision, it’s best to read the fine print so you don’t end up feeling robbed when charges are levied.
Also, attention should be given to the list of terms and conditions relating to interest, prepayment, loan transfer and many other issues related to home loans when choosing a home loan.
Here is the complete procedure of how you can get a home loan:
Typical Home Loan Application Process:
Banks also take your age background and family status into account. Someone who has many dependents might not be able to bear the monthly installments. While a younger applicant without any dependents has a better chance of repaying the home loan.
The application procedure for a home loan is pretty simple. You can walk through it via the following steps:
If you are applying online for the home loan, then follow these steps:
When your home loan disbursement cheque is generated, that is when you start paying the EMIs for your home loan. Once you have received the home loan amount, then you will start paying your EMIs according to the EMI cycle.
The following tips will help you avail a home loan easily:
You surely can switch from a floating interest rate to a fixed rate during your home loan repayment tenure. But, you will be required to pay a nominal fee to the lender, as a conversion fee for the switch. This switch is advisable when the market is about to climb up.
If your first loan application gets rejected, then you can always reapply. But, there are a few things you need to consider before proceeding with that.
Since housing loans are typically long-term retail loans, lenders evaluate the repayment capacity of the borrower before approving or refusing a loan application. Your credit score plays a significant role in deciding your ability to repay a loan.
If you have a low credit score on your credit report, the chances of the lender rejecting your loan application are high. The unsatisfactory credit score measures your credit-worthiness that is considered by banks and financial institutions before approving your application. Therefore, before applying for a loan it is best to go through your credit score and credit report.
If you have a bad credit score, consider raising your score by repaying your debt on time before reapplying for a housing loan.
Because buying/building a home is a one-time investment, we sometimes seem to forget the financial costs involved therein. Banks and financial institutions set the maximum amount of loan to which you are entitled by considering your current monthly salary. There is a high possibility that your application was rejected due to the amount of the loan for which you applied.
If the loan amount you are applying for exceeds your qualifying loan amount, the lender may decide to reject your application. In such situations, to bring down the amount of the loan, you can consider increasing the down payment on your home loan.
If you have too many ongoing loans, banks may opt to reject your application for home loans. Because home loan lenders guarantee that you contribute no more than 50 percent of your monthly income to your loan repayments, any other existing long-term loans will result in your application being denied.
Too many ongoing loans will affect not only your finances but also your ability to repay. Consequently, it is recommended that you clear the pending loans, if any, before applying for a home loan.
There may be cases where applications are rejected due to low income. In these cases, you might consider adding a co-applicant such as an immediate family member. This will raise the maximum amount for which you are entitled, as the co-applicant’s income and credit-worthiness will also be taken into consideration when deciding your eligibility.
In some cases, the applicant’s job can serve as the determining factor as to whether the lender approves or rejects the loan application. If the lender discovers that you have often moved between jobs, your application will be rejected.
Often, unstable jobs will prove to harm your loan application. On the other hand, secure jobs with a known organization might have a beneficial impact on your application.
When your application for a home loan was rejected, and you only worked for a new employer for a brief period. Then, before reapplying for another home loan, you might consider giving it some more time.
Housing loans require a lot of paperwork such as proof of identity, proof of residency, bank account statements, financial statements, proof of income, property papers, documents accepted by the authority concerned, etc. Your loan lender can reject your loan application even if you fail to submit any one of the necessary documents.
You could try consulting with the banks’ customer relationship executives to get some assistance with proper loan documentation.
Banks/financial institutions take into account the following factors while assessing your loan eligibility:
Both forms of home loans have their advantages and opposites. With a fixed-rate home loan, the interest rate over the loan tenure stays constant, which helps you predict EMIs. Pick it up when interest rates on home loans are small. The interest rate influences the basis for economic adjustments and RBI policy decisions for floating rate home loans. Choose this option when you expect prices to decrease in the years ahead.
The following documents are needed for a home loan application:
You need to earn a minimum amount of INR 25,000 per month to be eligible for home loans.
The maximum loan that you could avail depends on your repayment capacity that is calculated by taking into account your monthly income, credit scores, expenses, other liabilities and so on. You could get an estimate of the maximum home loan you could be entitled to via a home loan calculator.
Yes, tax benefits can be availed, in terms of both the interest and the principal amount of your home loan. Under Section 80C of the Income Tax Act, deductions up to Rs.1.50 lakh can be made available on the principal sum repaid annually.
Taxpayers are also liable, under Section 24 of the IT Act, for benefits up to Rs.2 lakh on the interest repaid annually on a home loan.
No, banks and/or financial institution do not offer 100 percent of the value of the property as a home loan. Home loan lenders set a margin on their loan i.e. the percentage of the cost that will be paid by the lending institution (Generally 20% but some lenders might agree for 10%). For example, if the loan margin is set at 10 percent, then the bank must pay 90 percent of the value of the house. You would be expected to make a down payment of the balance amount in such cases, i.e. 10% to cover the rest of the purchase price.
No, home loan insurance along with a home loan is not at all necessary. But, you could consider taking insurance that would take cover for any liability in case of a marginal increase in the EMIs.
This post was last modified on 08/11/2020 11:45 PM
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