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Home Loan

Home is where you build your dreams. Home is where you nurture your family. Having a roof over your head is as important as breathing and eating.

So, how do you avail a home loan? Well it works like this: Avail a Home Loan from a lender and pay it back with interest over a period of time, through Equated Monthly Installments or EMIs.

 

Concepts & FAQ's Home Loan

Concepts & FAQ's

Meaning of a Home Loan: What is Home Loan or Housing Loan?

Home Loan is a loan given by banks, Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs), to purchase or construct house/properties. With a Home Loan you can:

  • Buy a plot of land
  • Construct a house
  • Repair/renovate a house

A Home Loan is a secured loan. The house is collateral or security till the home loan is repaid.

Terminologies:

Following are the common terminologies used in Home Loans:

1. Principal:It is the amount borrowed from the bank to buy/construct the house.

2. Down payment:It is the amount which you have to arrange yourself. The bank doesn’t give you this money. It ranges from 10% to 25% of the cost of house/property.

3. Eligible Loan Amount:You are eligible to get this amount from the bank as a loan. This is calculated based on income, credit score and other factors. Calculation of the eligible amount varies from bank to bank.

4. Co-applicant:A person who applies for a Home Loan along with the borrower. It can be parents, spouse, brother or children.

5. Fixed rate of interest:This interest rate remains fixed for the entire loan tenure.

6. Floating interest rate::This interest rate fluctuates throughout the loan tenure depending on the markets.

7. Equated Monthly Installment (EMI):It is the amount that has to be paid to the bank every month during the loan tenure.

8. Processing fees:These are bank charges to process the home Loan.

9. NOC:NOC stands for No Objection Certificate. It is a legal document issued by a lender to the borrower, saying that they have no objection in transferring the ownership of the property.

10. Occupancy Certificate:Occupancy Certificate is a legal document issued by the local planning authority to certify that a building is fit for occupation.

11. Reset Clause:Reset clause in Home Loan agreement states the period after which the fixed rate Home Loan will get converted to a floating rate Home Loan.

12. Basis Point::Also known as bps, it is a common unit of measurement for interest rates. It is one hundredth of one percentage point (1/100th of 1%). It is used to denote the percentage change in interest rates.

13. Tripartite agreement:It is a legal document involving the buyer, bank and the seller. As the property is still not in the borrower’s name until possession or total repayment of the Home Loan, the buyer is included in the agreement with the lender.

Eligibility Criteria to avail a Home Loan:

Before banks grant a Home Loan, they do some checks of their own called due diligence. You have to be eligible to get that Home Loan. Be sure to check the important eligibility criteria:

1. Age:Younger the age of the borrower, greater are the chances of getting a Home Loan. To avail a loan, salaried employees should be between the age of 21 to 60 years and self-employed should be between 21 to 65 years.

2. Job Stability:A salaried employee should be in his current job for at least 2 years. For a self-employed, the business should have been in existence for at least 3 years.

3. Income Level:A higher monthly income indicates the ability to pay higher EMI’s. Therefore, the probability of repaying the loan on time is high. The present income status and past financial track record are considered to ascertain financial stability.

4. Credit Rating:If you have a CIBIL score of 750 and above, greater are the chances of getting a loan with flexibility on amount, EMI, tenure and interest rates. A low credit score indicates high outstanding loans and maybe defaults, which can lead to a rejection of the loan.

5. Other Loans:The banks will consider other loans that you have availed or any pending dues in your name.

Benefits of availing a Home Loan:

1. Lifelong investment:The property acquired is a life-long investment which gives you a sense of accomplishment.

2. Capital Appreciation:Property prices generally go up with time. Thus, a house is an investment that can give great benefits in the long run, whether it is occupied, sold or rented out.

3. Fluctuation in interest rates:Repayment of Home Loans take a long time, maybe a decade or two. Also, interest rates are subject to variations. If interest rates are expected to rise and you have a large sum of money, you can prepay the Home Loan and close it before the loan tenure.

4. Tax Benefit on interest paid:Interest paid towards Home Loan is eligible for Tax deductions as per Section 24(b) of the Income Tax Act, 1961.

5. Tax Benefit on principal repayment:The principal repayment is eligible for Tax deduction under Section 80C of the Income Tax Act, 1961.

6. Inflation:With construction costs increasing year on year due to inflation, rent will rise too.

Documents required for availing a Home Loan:

Following are the important documents required to avail a Home Loan:

1. Driving License.

2. Voter’s ID.

3. Passport.

4. PAN Card.

5. Utility Bills.

6. Ration Card.

7. Passport size photographs.

8. Sale agreement.

9. 6 months bank statements.

10. Business documents describing type of business.

11. IT Returns.

12. Last 3 month's salary slips.

13. Form 16A.

Why avail Home Loans?

Cheap Rates:

Banks are competing with each other to offer you, low-interest rates. Women customers are offered a discount on interest by most banks.

Joint Loans:

You and spouse can avail a joint home loan. You get a higher amount of loan and also save on tax.

 

Own a Home in Youth:

You don't have to wait till you are old, to own a house. You enjoy a sense of accomplishment, as you are the owner of a house, at a young age.

Tax Benefits:

You enjoy tax benefits on Principal and Interest on the home loan.


Online Home Loan Application:

Borrowers don’t need to run from pillar to post to submit a Home Loan application form. You can apply for a Home Loan online. The easiest way is to do so is go online and compare various Home Loan offers in the market and shortlist your chosen lenders. This saves a lot of time and effort.

An online application is a time-saving and convenient way to apply for loans and is fast becoming the preferred mode of choice for many borrowers

Types of Interest rates on Home Loans:

Home loan in India can primarily be classified into two categories on the basis of interest rates i.e. Fixed rate and Floating rate of interest.

There are very few lenders in India who offer purely fixed rates where the rate of interest remains constant for the entire tenure of the home loan. In floating home loan type, the rate of interest on such loans is subject to change depending on market conditions.

Home Loan Costs:

1.Processing fees on Home Loans:This fee is charged by the bank for processing the home loan and is non-refundable. This generally varies in the range of 0.5-1% of the total home loan amount. However, being charged a processing fee doesn't mean the loan gets sanctioned.

2.Prepayment charges on Home Loans:Banks have waived-off prepayment charges on floating rate home loans.

Processing fees for Home Loans : This fee is charged by the bank for processing the home loan and is not refundable. This generally varies in the range of 0.5 to 1% of the total home loan amount. However being charged for processing fee doesn't mean that the loan is passed.

Prepayment fees for Home Loans : Prepayment fee would be applicable if one is planning to pay the balance amount or planning to switch the loan to a different bank. Few of the banks offer no prepayment charges in case the prepayment is done from self.

Tax Benefits: Home Loans are an excellent option for getting Tax benefits under Section 80C.

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Monday, September 23, 2019, 11:07 AM

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What is Home Loan Overdraft Facility?

Tuesday, June 25, 2019, 1:22 PM

A home loan overdraft facility is like a current account. This facility helps deposit surplus funds into a home loan account and the amount you deposit is considered as prepayment against the home loan principal-amount. The bank revises the home loan principal amount in sync with periodic deposits and computes the interest considering the difference between the total deposits made and the outstanding principal-amount.

What is a Mortgage Lien?

Friday, June 14, 2019, 10:44 AM

A mortgage lien gives the bank safety as it has legal right on the property, if the loan turns bad. It gives the bank a claim on the property, until the debt is fully repaid. In other words, a mortgage lien is a legal claim imposed against a mortgaged property, which could be a house or a property.

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MCLR is closely linked with the repo rate and the cost of funds of a bank. It is the minimum interest rate that a bank can charge on Home Loans. Banks add a small percentage of spread to the MCLR and the resultant figure is the rate of interest charged on Home Loans.

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