Home Loans in India from Banks

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Also Watch our Videos explaining various aspects on Home Loans at http://iedubook.com/tutorial/cl/23/Finance-and-Life/Borrowings.html

Home Loans

Housing Loan  is a secured loan given to a Borrower who wants to purchase a House or property. The loan is given by the bank/ housing finance company, which also keeps the property purchased through the money borrowed as collateral.

Purpose of Home Loan

• Purchase a residential apartment which could be ready to move in or under construction.
• Transfer outstanding balance from one housing company to another, which may offer a better rate
• Repair and renovation of existing house, which may already have a loan
• Plot for construction of house, along with the cost for construction

Maximum Amount of Loan

The amount of home loan which a bank gives to a customer depends on his/her repayment capabilities, like your income, age, job etc, and is generally restricted to a maximum of 70-85% of the cost of the property. Normally this percentage is more in case of Flats and little lower in case where a user purchases a plot of land and carries out construction thereon.

Tenor

Maximum tenure of home loan from various banks is 20 years. In case of salaried individuals who are approaching retirement within a period of less than 20 years, the tenure is capped at retirement age.  

Maximum Eligibility

Each bank has its own criterion to determine the individuals eligibility for loan. However, if the spouse of the borrower also earn, they can be made co-applicant and their income would then be considered to arrive at total eligibility.

Rates and Fees

Rates and Fees on Home Loan depend on the period and amount of Loan. Normally these have ranged between 7-12% in the past, and vary depending on the economic conditions and rates fixed by RBI, which are taken as benchmark by the Banks or Housing Finance Companies to grant Loans.

Insurance

When you take a Home loan, these days certain companies also insure your Home loans. Many banks are willing to provide additional loan to cover up the insurance amount, which is normally one time. The impact is that they increase your EMI on account of insurance premium so paid.

Tax Break

Interest paid by a person on Home loan is also allowed as a deduction for income tax purpose. In case of self occupied property, this is restricted to INR 150,000 (subject to change from time to time under tax laws) per borrower. In case of property which is rented out, the actual interest paid can be claimed as a deduction, subject to certain conditions.

Increase in rate of interest on Home Loans

Whenever there is an increase in the rate of interest in case of floating loans, the bank has two options : -

• Increase the Equated Monthly installment payable by borrower
• Increase tenure of Loan

Prepayment

The Borrower has the option to prepay the loans whenever they have surplus money. Some banks have restrictions on minimum period before which the repayment can be made. However, continuous and regular payments can significantly reduce your tenure of loan. Refer our Video on how the prepayment of 10,000, 20,000  a month can reduce the tenure of Loan from 20 years for a loan of Rs. 20,00,000, other things remaining the same at the following link : -

The Author can be reached at arinjayjain@iedubook.com