Here we have enumerated different features of a home loan to help you understand the home loans in a better way.
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When granting a home loan, the lender uses your property (home) in order to secure the loan. Due to use of your house as collateral, home loans are secured loans that involve a low level of risk for the lender. If the borrower is unable to pay the loan for any reason, the lender can legally auction off your property to retrieve the outstanding loan amount.
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Being a secured loan, home loan interest rate is comparatively lower than an unsecured loan, such as a personal loan.
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The amount of the home loan can vary based on your income, credit history, the locality/city you are planning the purchase in and various other factors. You can apply for a home loan jointly with your spouse, family members or others as co-applicants.
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Home loans usually have longer repayment tenures and ranges from 5 years to 30 years. The repayment time period for a home loan is fixed at the time you apply for home loan.
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Prepayment of home loan can also be done. Some home loan providers charge a prepayment fees for the loan while others do not. Therefore, home buyers should compare the home loans available to find the best home loan offers.
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The Equated Monthly Installment (EMI) is the amount that you pay each month to satisfy your home loan amount. When calculating the Home Loan EMI, both the accrued interest on the loan and the principal amount are taken into account. You can use home loan EMI calculator to calculate the EMI which you will have to pay for your home loan.
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Home loan includes a number of associated charges, such as registration charge, processing fee, penalty on prepayment, commitment charge and miscellaneous charges (documentation/consultation).
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Banks maintain a margin of approximately 20% when sanctioning a home loan. Thus, the home loan amount provided to you only covers an 80% of the estimated value of the house being purchased. Additional costs such as down payment, registration costs, etc. have to be borne by you.
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The uniqueness of home loan is the borrower gets benefited from tax savings because interest outflow up to Rs. 150000 during a financial year can bet set off against salary/business income. Similarly principal amount to the extend of Rs 100000 can also be availed as a deduction under Section 80 (C) of the Indian Income Tax Act, 1961. The ability to repay the loan over a long time period also makes the entire borrowing affordable for the individual because it fits the monthly outgo within his/her income. It is the easiest way to create an asset thereby giving tax benefits as well.
