Home loans in India are extremely popular and their availability has helped several people find their own homes. A home loan finances 65% to 90% of the value of the house which helps provide a majority of the finance required to purchase a house. There are a lot of lenders who give a housing loan very easily these days.
However, before you apply for a home loan, there are a few things you must know and remember. This can help you plan properly and choose the right options for your loan.
Here are 5 factors to remember before taking a housing loan:
- This loan is secured:
A home loan is a secured loan. This means the house in question is mortgaged to the lender till the time the loan is repaid. This means the lender has a right to repossess the property and sell it in case of continued default from the borrower. However, lenders resort to this as the last resort and the property is only sold after sufficient notice is given to the defaulting borrower.
- Tax benefits:
A housing loan has tax benefits on repayment. Interest paid on a property that is self-occupied gets a deduction up to Rs. 2 lakhs under Section 24 of the Income Tax Act. In case the property is rented out, there is no limit on the amount allowed as a deduction. Principal repayment on a home loan gets a deduction up to Rs. 1,50,000 under Section 80C of the Income Tax Act. The deduction for both interest and principal repayment is given in the ratio in which joint applicants apply for the loan. That’s why if you’re planning to apply for a housing loan jointly, you need to decide your property ownership shares smartly to get the best benefit of these deductions.
- Home loan eligibility:
Each lender has their own home loan eligibility criteria. Some common criteria are:
- Minimum monthly income
- Age of the applicant
- Place of application
- Number of years of employment
- Number of years of residence in the place
Most lenders have these eligibility criteria clearly specified on their website. It is possible to use a home loan eligibility calculator to find out whether you meet the eligibility criteria and what is the amount of home loan that will be sanctioned to you. This calculator is also available on lender websites.
- Pre-payments and Part repayments:
Home loans in India do not have any pre-payment or part repayment fees associated with it. Unlike personal loans, no additional interest is charged on repayments made during the year. This means it is possible to pay any amount over and above the EMI at any point of time. Part repayments can begin almost instantly. This helps repay the loan faster and save on interest. In case you are planning to apply for a housing loan, consider making part repayments over and above the EMI that gets debited from your account. This will reduce the overall interest burden on your loan and help you save money.
- Choose the right EMI:
Lenders give borrowers the flexibility to decide the home loan repayment tenure within their given range. It is extremely important to choose the right EMI that fits in with the budget. The EMI is dependent on the rate of interest and more importantly, the tenure of the loan. A higher tenure will mean a lower EMI, but this translates into a higher total interest outgo. However, opting for too short a repayment tenure can put a burden on monthly instalment payments. To choose the right EMI, it is important to make a budget and find out monthly expenses and surplus cash. Since home loans don’t have any part payment charges, it is possible to opt for a low EMI and then repay the loan as and when you have surplus funds.