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.
TYPES OF HOME LOAN
EMI (EQUATED MONTHLY INSTALMENT)
EMI (Equated Monthly Instalment) 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.
To qualify for a home loan, most of the lending institutions in India require you to be :-
An Indian resident or NRI
Above 24 years of age at the commencement of the loan
Below 60 or retirement age when the loan matures
Either self employed or salaried
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.
TYPE OF INTERESTS
OTHER COSTS THAN ACCOMPANY A HOME LOAN
FREQUENTLY ASKED QUESTIONS
How do HFCs decide on the loan amount?
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.
Are securities required for home loans?
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.
What is the time required for loan disbursement?
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.
What are the tax benefits of home loans?
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.
HOME LOAN DOCUMENTS
Generally, the documents required to process a loan application are almost similar across all banks, however they may differ depending upon specific requirements and other factors. The following documents are required by financial institutions to process a loan application: