Home Loans – Meaning, Types, Eligibility and Features in 2024
For most people, owning a home is one of the biggest dreams and a luxury. Realizing such a dream takes a lot of hard work from the buyer, and the best way to buy a home within your budget is through a home loan.
Home loans can be used to buy a new house/apartment or land to build a house on , or even to renovate, extend and repair an existing home.
Types of Home Loans in India
Housing Loans
This is the most common type of home loan used to buy a home. There are a number of housing finance companies, public and private banks that offer home loans where you can borrow money to buy a home of your choice and pay back the loan in monthly installments.
You can obtain up to 80%-90% of the market price of the house through financing. The lender will keep the home until you pay back the loan in full.
Home construction loan
This is the right type of home loan if you already own a piece of land and need financing to build a home on it.
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Housing deferment loan
Let’s say you already own a house and you want to add another room or another floor to the house to accommodate your growing family. Home deferment loans provide financing for this purpose.
Home Improvement Loans
Home improvement loans can provide financing for home renovations or repairs if there are any failures in existing systems, such as home interior or exterior paint, plumbing, upgraded electrical systems, ceiling waterproofing, and more.
Home Loan Balance Transfer
Current home loan interest rates may be too high, or you may not be satisfied with the service of your current lender; you can transfer the outstanding balance of your home loan to another lender that offers lower rates and better service. After the transfer, you can even view the possibility of a top-up loan on an existing loan.
Consolidated Home Loan
This type of home loan provides financing for the purchase of the land on which you want to build the home and the construction works, both in a single loan.
Benefits of applying for a home loan
Tax incentives
The great thing about a home loan is that you can claim income tax deduction on interest and principal repayments. You can claim up to Rs 1.5 lakh for principal repayment 80C , up to Rs 2 lakh for interest repayment 24B and u/s 80EE and 80EEA up to Rs 2 lakh for interest repayment in exceptional circumstances , Stamp duty charges up to Rs 150,000 Rs 80.
Lower interest rates
Home loan interest rates are much lower than any other loan type available. If you run into a cash crunch, you can solve the problem by supplementing your existing home loan at a lower interest rate than a personal loan.
Property Due Diligence
When you buy a home through a bank, the bank does a thorough legal inspection of the property and checks that all documents presented are valid.
Due diligence from the bank will reduce your risk of being scammed. If the bank approves the property, it means you and your house are safe.
Long repayment period
Unlike any other loan, a home loan has a longer repayment period of up to 25 to 30 years. This is because purchasing a home requires taking out a large loan.
Spreading the loan amount and applicable interest over a longer tenor will reduce the monthly EMI, thereby easing the burden on the borrower.
No prepayment penalty
When you take out a variable rate home loan, you can pay off early without paying any prepayment penalties, as long as you have an amount on hand. This will help you close your home loan early, before the set loan term.
Balance transfer facility
You can transfer a home loan from one lender to another for a number of reasons, such as interest rates, service fees, customer service experience, and more.
Home loan interest rate
The average home loan interest rate in India as of March 2021 ranges from 6.5% to 12.00%. Rates typically vary depending on the lender, the repo rate set by the RBI, inflation, economic activity and many other factors.
Some banks also have special offers for women, bank staff and seniors, offering a 0.05% discount on home loan interest rates.
In addition, home loan interest rates can be fixed or floating. A fixed-rate home loan remains unchanged for a period specified by the bank. This type of home loan is not subject to market fluctuations.
For variable rate home loans, the applicable interest rate changes according to market fluctuations. It may or may not work for the borrower.
Generally speaking, EMI Calculator is a simple and handy tool to calculate the monthly loan amount payable to the lender (bank).
You can try our Home Loan EMI Calculator to find out the EMI you might have to pay each month for a specific loan amount and figure out your affordability in advance.
The Home Loan Calculator is easy to use because you only need to enter values for the principal loan amount (P), term (N) and interest rate (R) that you plan to borrow.
Application process
Due to the advent of technology, various mediums now exist and getting a home loan has become easier than before. People can go directly to a bank branch to inquire about home loan options, or apply online.
After applying, the bank will collect the required documents from you. It initiates the processing of your application, including checking CIBIL points, asset values, eligibility calculations based on your income and liabilities, and more.
After evaluating and verifying all documents, the bank decides to approve or reject the loan.
