Home Loan

home loan

Home Loan

Home is an integral part of an individual, who since his / her birth and childhood, dreams to have living space of his / her own. Once in a lifetime investment requires loan to accomplish it and that is how the home loan comes into scheme of things. Buying a home is dream for everyone. Owing to the rising price of properties, it has almost become impossible for an average earning person to buy a home on a lump sum payment. Therefore, the concept of home loan has come in existence. There are plethora of housing finance companies and equal number of banks that offer home loans. The task of selecting one company and one offer for home loan amidst the thousands available options have become a very complex task owing to the burgeoning housing finance market in the country. Apart from this, there are intricate business jargons and technicalities that make this task more difficult. In this study, I propose to give the basic information of home loan technicalities, so that when a person applies for the home loan, he / she can understand the basics and help themselves remain away from the duping elements in the market.

(1) Home Loan

Home Loan is available for Purchase of new / old dwelling unit, Construction of house, Purchase of plot of land for construction of a house. Customers repaying a loan already taken from other Housing Finance Company / Bank. Repayment period up to 25 years (floating rate option). Also for Repairs / Renovations / Improvement / Extension of Home and for Furniture, Fittings & Fixtures.

(2) Home Loans to NRIs / PIOs

Banks have also designed housing loan facility for NRI / PIO. Customer opt for Flexi Rate plan to hedge the interest rate risk by breaking the loan into two separate accounts, Free property insurance and personal accident insurance. Borrower does not pay pre payment / foreclosure charges for part as well as full prepayment (when repaid from own sources by the borrower).

Importance of Home Loan

The need for home loans arises not because property prices are heading upwards all the time but because home loans make great sense from a long-term savings perspective. Not only are home loans a handy tool for the common man to own a roof over his head but they also help save money in the long run.

With skyrocketing real estate prices, people are increasingly opting for housing loans to acquire their dream home. Interest rates are coming 76 down all the time and the banks and the housing finance companies are literally falling over each other to lure the prospective home-seekers.

Notwithstanding the tax breaks and generous lending rates, a lot of people still cannot arrange resources for the down-payment, which comes out to be at least 15 per cent of the property value. Taking cognizance of the situation, Banks are coming up with home loan products called ‘zero down payment loans’ wherein 100 per cent funding is provided for select properties. These lucrative offers are other major reasons for why people are opting for loans.

Even if one can afford to buy a home with one's own money, home loans should be availed because they act as good savings instrument. According to industry estimates, the long term average return in investing in a home is about 20% p.a. while the average cost of borrowing funds in the market today is about 7% p.a. (considering all tax breaks).

For salaried employees, housing loans are the best way to avail of tax benefits. Many people simply go for the home loans in order to avail these benefits. Interest payments up to ` 1.5 lakh on housing loans are deductible from the taxable income and there is a further deduction of taxable income maximum up to ` 1 lakh against repayment of principal portion per annum. In case a person stays in a rented house, the cost of the loan will be nearly zero per cent since he will be saving a decent amount on rent.

With skyrocketing real estate prices, people are increasingly opting for housing loans to acquire their dream home. Interest rates are coming 76 down all the time and the banks and the housing finance companies are literally falling over each other to lure the prospective home-seekers.

With skyrocketing real estate prices, people are increasingly opting for housing loans to acquire their dream home. Interest rates are coming 76 down all the time and the banks and the housing finance companies are literally falling over each other to lure the prospective home-seekers.