Share Market Technical Analyst Rakesh Desai

HOME LOAN

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What is Home Loan or Housing Loan?

A home loan or housing loan is an amount borrowed by individuals for a fixed tenure from financial institutions to buy, construct, repair or renovate a residential property. Lenders charge an interest on the amount borrowed, which has to be paid by the borrowers along with the principal amount.

Home loan or housing loan is one of the most popular products offered by banks and NBFCs to customers. Home loan is also the largest selling banking product and the one that ensures the longest banking relationship with the lender. Owning a home of your own is generally an obvious as well as a major decision in a person’s life. However, the cost of construction or purchase of property is quite high and this is where home loans play a major, almost indispensable role for majority of home buyers. Home or housing loans are advances made to borrowers who require funds to purchase houses/flats/land. They can also be availed of for construction, extension and renovation of houses. Lenders can be banking or non-banking financial institutions.

Why choose a Home Loan?

In the last few years, real estate has been one of the most lucrative investment options for investors. No matter how profitable it sounds, the rising stature of real estate as an investment option has led to soaring prices of property in the country. Both land and buildings have become extremely expensive for customers to buy. This has led to a surge in the number of home loans that are applied for each day.

  • Rising Price: Even though rising prices of real estate is one reason for borrowers availing home loans, another major reason behind this is that property transactions are generally hefty as compared to other day to day financial transactions. As such, it is not at all necessary that the buyer will have the entire property cost available with him or her, at the time of buying property. This is where home loans step in and bridge the gap between property seller and buyer.

  • Interest Rates: Banks chip in to pay on behalf of property buyer in return for a particular rate of interest. The general rule is 80-20 which means that banks offer only 80% of the value of home to customers and the rest 20% is to be borne by the property buyer. This serves as a win-win situation for both banks and property buyers, since, banks are able to make profits by loaning out money while buyers are able to assimilate the entire cost of property and pay it back over a fixed period of time.

  • Tax Exemption: Home loans are eligible for certain income tax exemptions which can be used to save up on the amount of income tax that an individual pays every financial year. Under section 24 of the Income Tax Act, tax benefit can be claimed on up to Rs.1.5 lakh out of the interest component of your home loan. In case you are staying in the house bought on loan, then you can claim a maximum exemption of Rs.1 lakh on the principal amount of the home loan too.

Types of Home Loans

Depending upon the type of property being purchased and the quantum of loan being availed, home loans can be classified into the following different types. In India, banks and NBFCs generally offer home loans under any one of the following listed variants of housing loans.

  • Home Purchase Loans: As the name itself indicates, home purchase loans are specifically given for purchase of flats or homes. These are the most popular type of home loan and are availed by most home loan borrowers. Almost all banks and Non-Banking Financial Corporations offer home purchase loans.

  • Home Loan for Construction: Home loan for construction is offered to customers who want cash to construct their own house on an existing piece of land. The catch is that the land for construction should have been bought within a year of availing the loan for the cost of land to be counted as part of this loan. In case the land was bought earlier than one year, then the cost of land is excluded from the loan amount. The formalities for construction loan are slightly different than those for regular home loans.

  • Plot Loans: Plot loans are loans offered by banks for purchase of land or plot. These loans are not necessarily offered by all banks or NBFCs.

  • Home Extension/Renovation Loans: Home loans for extension or renovation of home are offered to those home loan borrowers who already have a house but are looking for further construction or renovation on their existing piece of property. For example, addition of an extra room or renovating a staircase etc.

  • Home Conversion Loan: If you have already taken a home loan for purchasing a house, but wish to shift to another house, then you can opt for a home conversion loan. It will help you in transferring the current loan to your new house.

  • Balance Transfer Home Loan: Individuals can use the balance transfer option to transfer their home loan from one bank to another. Most people choose this option to avail better interest rates.

  • NRI Home Loan: NRI Home Loans are specially designed for Non-Resident Indians (NRI) who wish to purchase a residential property in India. The requirements and procedure of availing this loan is different from the regular home loans.

  • Stamp Duty Loans: Stamp Duty Loans are offered by banks to cover the stamp duty charges, which is incurred while purchasing a property.

  • Bridged Loans: Existing homeowners who want to buy a new house can apply for a Bridged Loan, which will fund the new house. Generally, the tenure of this loan is below 2 years and it requires the borrowers to mortgage the new property with the lender until the loan is repaid.

Have More Queries?

Feel free to enquire about any of your doubts, and we would be available to get your desired solution.


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CONTACT FOR MORE DETAILS

Rakesh Desai
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Kolkata - 700 029
West Bengal, India
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