A home loan is a loan taken for buying or
constructing a home or to make improvements to a residential property.
You can get a loan from from banks and registered housing finance
companies.
Your home loan is secured against the property that you buy. This means that in case you are unable to repay the loan, the lending bank will have the right to take possession of your home.
Your home loan is secured against the property that you buy. This means that in case you are unable to repay the loan, the lending bank will have the right to take possession of your home.
Ans: 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 implementing repair works and renovations 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.
- LAND PURCHASE LOAN
This type of loan is sanctioned for purchase of land, for both home construction or investment purposes.
- BALANCE TRANSFER LOAN
Balance Transfer loans help you pay off an existing home loan with a higher interest rate, and avail of a loan with a lower rate of interest.
- 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.
- LOANS TO NRIs
This loan is tailored for the requirements of NRIs wishing to build or buy a home in India
Ans.: 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 a portion of the interest as well as the principal.
Ans.:
To qualify for a home loan, most of the lending institutions in India require you to be:
a) An Indian resident or NRI
b) Above 24 years of age at the commencement of the loan
c) Below 60 or retirement age when the loan matures
d) Either self employed or salaried
a) An Indian resident or NRI
b) Above 24 years of age at the commencement of the loan
c) Below 60 or retirement age when the loan matures
d) Either self employed or salaried
Ans.:
Interest rates are different from
institution to institution and generally range from about 8.75% to
around 12 %. The interest on home loans in India is usually calculated
either on monthly reducing or yearly reducing balance. In some cases,
daily reducing basis is also adopted.
Annual reducing:
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. This means the EMI for the monthly reducing system is effectively less than the annual reducing system.
Monthly reducing:
In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
Daily Reducing:
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.
Annual reducing:
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. This means the EMI for the monthly reducing system is effectively less than the annual reducing system.
Monthly reducing:
In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
Daily Reducing:
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.
Ans.: Some institutions have a
fixed rate of interest, which means the rate of interest remains
unchanged for the entire duration of the loan. This means you do not
benefit, even if rates of interest drop in the market.
Ans.: This is the rate of interest
that fluctuates according to the market lending rate. This means you
stand the risk of paying more than you budgeted for in case the lending
rate goes up
Ans.: Home loans are usually accompanied by the following extra costs:
a) Processing Charge: It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. The loan amount required by you cannot be less than the processing fee.
b) Pre-payment Penalties: When a loan is paid back before the end of the agreed duration, a penalty is charged by some banks/companies, which is usually 2% of the amount being pre-paid. c) Miscellaneous Costs: It is quite possible that some lenders may levy a documentation or consultant charges.
a) Processing Charge: It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. The loan amount required by you cannot be less than the processing fee.
b) Pre-payment Penalties: When a loan is paid back before the end of the agreed duration, a penalty is charged by some banks/companies, which is usually 2% of the amount being pre-paid. c) Miscellaneous Costs: It is quite possible that some lenders may levy a documentation or consultant charges.
Ans.: Usually, most companies
give up to a maximum of 85% of the cost of the house. The 15%, sometimes
called 'seed money', will have to be provided by the loan applicant.
The amount, for which the applicant is eligible, is determined by the
age, income, no. of dependents, monthly outgoing and repayment capacity.
This varies from case to case.
Ans.: 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.
Ans.: 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.
Ans.: 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 1965:
Principal amount of repayment of loan along with other savings such as PF, PPF, Life Insurance premium etc up to a maximum of Rs 1, 00,000/- will be eligible for deduction from gross income.
Interest paid up to a maximum of Rs 1, 50,000/- will be eligible for deduction from gross income on loan after completion of construction will be deductible from income from property
Principal amount of repayment of loan along with other savings such as PF, PPF, Life Insurance premium etc up to a maximum of Rs 1, 00,000/- will be eligible for deduction from gross income.
Interest paid up to a maximum of Rs 1, 50,000/- will be eligible for deduction from gross income on loan after completion of construction will be deductible from income from property
