Home Loan
A home loan, also known as a mortgage loan, is a type of loan provided by banks and financial institutions to individuals or families to purchase a residential property. It is one of the most common forms of borrowing for buying homes, especially for those who may not have sufficient savings to make a full payment upfront.
Features and Benefits of Home Loans :
Purpose:
The primary purpose of a home loan is to finance the purchase of a residential property, which can include apartments, houses, plots of land, or the construction of a house.
Loan Amount:
The amount of loan offered depends on various factors such as the applicant's income, creditworthiness, the value of the property being purchased (loan-to-value ratio), and the lender's policies. Typically, lenders finance up to 80-90% of the property's value.
Interest Rates:
Home loan interest rates can be either fixed or floating:
Fixed Interest Rate:
Remains constant throughout the loan tenure, providing predictable monthly payments.
Floating Interest Rate:
Fluctuates based on market conditions, potentially leading to varying monthly payments.
Loan Tenure:
Home loans generally have long tenures, often ranging from 5 years to 30 years. The tenure is influenced by factors such as the borrower's age at the time of loan maturity and their repayment capacity.
Repayment:
Repayment of the home loan is typically done through Equated Monthly Installments (EMIs). Each EMI consists of both principal repayment and interest payments. Borrowers can choose from various repayment schedules based on their financial situation and preferences
.
Collateral:
The property being purchased acts as collateral/security for the loan until it is fully repaid. In case of default, the lender has the right to take possession of the property through a legal process known as foreclosure.
Documentation:
Applicants need to provide various documents such as identity proof, address proof, income proof (salary slips, bank statements, income tax returns), property documents, and sometimes legal clearances related to the property.
Affordability:
Allows individuals to purchase a home without needing a large lump sum of money upfront.
Tax Benefits:
Home loan borrowers can avail tax benefits under Section 80C (for principal repayment) and Section 24(b) (for interest repayment) of the Income Tax Act, which can significantly reduce tax liabilities.
Long Repayment Tenure:
Provides flexibility with extended repayment periods, making it easier for borrowers to manage their finances over a long period.
Types of Home Loans:
1. Home Purchase Loan:
This is the most common type of home loan used to finance the purchase of a new residential property or an existing house from its current owner.
2. Home Construction Loan:
This loan is availed for the construction of a new house on a plot of land owned by the borrower. Funds are released in stages as the construction progresses.
3. Home Improvement/Extension Loan:
Used for renovating or making structural changes to an existing house, such as adding an extra room, kitchen renovation, flooring, etc.
4. Home Conversion Loan:
For borrowers who have already taken a home loan to finance the purchase of a house and later want to move to a new house. The existing loan is transferred to the new property, often with additional funds if needed.
5. Land Purchase Loan:
Specifically for purchasing a plot of land on which the borrower intends to construct a house in the future. Usually, the construction must begin within a specified period after land purchase.
6. Bridge Loan:
Short-term financing option used by homeowners who have already sold their current home and are in the process of buying a new one. It helps bridge the financial gap until the sale proceeds of the old home are received.
7. Home Loan for NRIs:
Designed for Non-Resident Indians (NRIs) who wish to buy property in India. The terms and conditions may vary slightly from loans for resident Indians.
Why should you take a Home Loan from Ars Financial Service?
Home loan features like interest rates, loan amount, tenor, origination charges etc. can vary significantly from lender to lender depending on the cost of financing and credit risk assessment of the loan applicant. Hence, Ars financial service allows you to compare home loans offered by 20+ partner banks and HFCs based on your monthly income, repayment capacity, credit score, occupational profile, employer profile and other relevant eligibility criteria.