Purchasing a new home is a significant life event and requires a financial boost for many people to materialize the long dream. One of the leading avenues of accessing funds for home purchase is through a new home loan which offers numerous benefits to the borrower. Understanding the critical features of a home loan enables you to make informed choices on what would suit your needs best.
This article explains how loans work in India and details the various available options. It also points out particular tools, such as an income tax saving calculator, that can help you maximize financial gains.
1. Flexible Loan Tenure
A typical new home loan allows for tenures spanning between 10 and 30 years, with lenders varying according to their policy or the customer’s preference.
- Longer tenure results in a lower monthly EMI burden.
- Shorter tenure enables quicker repayment and reduced overall interest paid.
- Borrowers are free to choose any payment period that is compatible with their financial stability and future goals.
2. Interest Rate Options: Fixed or Floating
Indian lenders give two options on interest rates applicable to home loans:
- Fixed Interest Rate: A rate that remains constant all through the period scheduled for repayment, thereby providing stability in EMI payments.
- Floating Interest Rate: This rate varies based on market fluctuations typically tied to Reservoir Bank of India’s (RBI) repurchase rate, which often results in lower total interest.
3. High Loan-to-Value (LTV) Ratio
With new home loans, one can borrow up to 75% – 90% of the value of their property. The LTV ratio is subject to changes in the amount of the loan:
- Up to 90% of finance is available for loans below 30 lakh rupees.
- Around 80% is provided for mortgages ranging between 30 and 75 lacs.
- 75% is accessible to those whose loans exceed 75 lacs.
The borrower pays the remaining part through a down payment. This should be accounted for when considering getting a home loan as well.
4. Income Tax Benefits Under Sections 80C and 24(b)
One way in which one can enjoy tax benefits with a new home loan in India is through:
- Section 80C: Deduction of up to 1.5 lakhs per annum towards principal repayment
- Section 24(b): Deduction for self-occupied properties on payment of interest up to 2 lacs every year
- Section 80EEA: Under certain conditions, first-time home buyers are eligible for an additional deduction of Rs 1.5 lakh
Pro Tip: Use an income tax saving calculator to find out how much you may save yearly from these deductions. This will enable you to plan and optimize your finances based on your tax savings.
5. Prepayment and Foreclosure Options
Most lenders will allow the borrower to prepay or foreclose partially or fully on their home loan without any penalty, often applicable on floating-rate loans. This helps reduce the overall interest burden on borrowers because it extinguishes part of their debt by funding principal, not interest accrued until then. By pre-paying, the principal amount decreases, thereby reducing future interest payments made individually.
6. Balance Transfer Facility
If you get a lender who gives a lower interest rate, you may opt for a balance transfer. This feature enables borrowers to move an existing loan from one lender to another that offers better terms for their particular needs.
- The EMIs can be decreased by transferring the balances.
- This is usually allowed after a certain minimum period of time has passed since the taking of the loan.
7. Top-Up Loan Facility
Borrowers can avail a top-up loan for more than their present home loan amount. This extra sum can be utilized in home renovations, furnishing or personal requirements.
- Ease of application with little paperwork required.
- Lower rates compared to personal loans are mostly charged as interest rates.
8. Insurance Coverage for Home Loan
Many institutions offer home loan insurance that covers the borrower’s family in case of unfortunate occurrences. When a borrower dies before repaying their housing loan, the insurance company pays off any pending amounts on behalf of such person. It is possible to pay premiums together or with the loan amount on an EMI.
9. Co-Applicant and Joint Loan Benefits
A home loan with a co-applicant increases loan eligibility and sometimes reduces the interest rate. Furthermore, both are eligible for tax deductions under sections 80C and 24(b). The eligibility for loan amount can be increased by having co-applicants. Dual tax benefits are advantageous to those who have taken joint home loans.
10. Digital Application and E-KYC
With the growth of digitalization, applying for a new home loan has become easier. Most lenders now offer online application portals with e-KYC (Know Your Customer) verification, simplifying loan approval.
Factors to Consider Before Taking a New Home Loan
- Interest rate and tenure: Choose according to repayment capacity.
- Down payment: Ensure adequate funds are available as initial down payments.
- Additional costs: Include processing charges, legal fees, or even insurance premiums while calculating.
Moreover, you can use an income tax saving calculator. This calculator helps you make informed decisions by telling you how much you would be able to save annually through tax benefits.
Conclusion
Many features in a new home loan facilitate both accessibility and financial reward for homeownership. Moreover, understanding aspects such as flexible tenure options and high LTV ratios, as well as tax advantages with balance transfer institutions, is vital for making informed decisions.
Compare lenders, read the fine print and pay attention to all the terms and conditions of the loan you’re applying for. Good luck applying!
