Today, buying a house is a once in a lifetime decision for many individuals. After all, there is a huge spike in property prices and interest rates. In order to sail through the process effectively, it is essential to gain a comprehensive understanding of the working of home loans in India. It is also critical to choose the right home loan product to avoid having any nasty surprises later. This article will give you a thorough understanding of home loans and their processes in India.
What is a Home Loan?
Home loans are typically secured loans and it is quite convenient to avail them in today’s day because the home is set as the collateral. Since it is not exactly easy for the vast masses to make a one-time heavy purchase of a house, home loans have been gaining a lot of momentum. Generally, banks provide you with a maximum of 80% of the value of the house. In some cases, banks also provide 90% value on home loans as well.
Your total eligibility will mainly depend on your repayment capacity, which is further based on your monthly income, assets, liabilities, stability, and debts, among others.
The financier has to make sure that you’re able to repay the loan amount on time. Hence, higher your monthly disposable income, higher will be the loan amount you’ll be eligible for. Generally, any financial institution assumes about 50% of your monthly income available for repayment. Furthermore, the interest rate and tenure also determine the loan amount you will be eligible for. Financial institutions also fix an upper age limit for home loan applicants, which impacts one’s eligibility. You can also check the home loan eligibility here.
Documents Required for Home Loans
– KYC documents
– Income proof
– Address proof
– Form 16 or latest salary slips
– Bank account statement of the previous 6 months
– Document proof of business of at least 5 years (For self-employed/ business individuals) \
Different types of home loans:
1) Fixed rate home loans
These loans come with fixed interest rates for the given period of time. Some of these fixed-rate loans can also have a ‘review’ clause every three or four years. This implies that the rate would remain fixed for a period, say, four years, and then revised upwards or downwards until the next review period.
2) Floating rate Home Loans
As the name suggests, such kind of interest rates keeps changing as they are benchmarked to the lending rate of interest and moves according to it. An increase or decrease in the floating rate brings a change in either the tenure of the loan or the loan EMI.
A Few Advantages of Home Loans
1) Tax Benefits
In order to encourage more people to buy their own houses, the government of India provides tax deductions on the interest as well as principal on home loans. A person is eligible to claim a deduction of around Rs 1.5 lakh under section 80C of the Income Tax of India Act in a single financial year. However, these tax deductions are only available once the construction of the house is complete. One cannot claim these deductions while the property is under construction.
2) You hold an Asset
Once the loan is paid, the borrower avails complete ownership of the house. Therefore, it becomes an asset that can help immensely in guarding form future troubles. One can also avail new loans against this owned property. It does an excellent job of supporting the family and the finances as well. Furthermore, at the age of retirement, an individual can also get a reverse mortgage to finance the ongoing needs for income.
3) Creates a Good Credit History
Taking a home loan provides you with an opportunity to create a satisfactory credit history. Home loans are linked with physical assets, and so it shows that the borrower is a regular payer and can manage their finances well. Upon seeing the good repayment capacity of the borrower, availing future loans becomes a convenient task.
If you’re considering taking up a home loan, Clix Capital is a modern day financial lender that provides hassle-free loans with minimal documentation and quick approvals. Enjoy the benefits of getting a home loan now!