Housing loan is commonly referred to as a home loan or mortgage. For buying residential property one can opt for it. There are multiple lending authorities present who give away loans for buying them. In return they charge an interest rate applicable on the amount of loan. This repayment cycle continues for more than 10 years and can even last to 30 – 35 years. The time period varies on the basis of loan type. The borrower repays in form of EMI’s to the bank or company. Now there are various types of home loans available in the market. Also the rate of interest applied on home loans can vary in all institutions. The rate can also vary among the individuals paying loan from the same institution. The reason is high CREDIT SCORE.
TYPES OF HOME LOAN
The loans are suited on the basis of the requirement and the interest is fixed but can vary in multiple situations. The major one is the credit score of an individual. Higher rate could be taken from a person with risky credit history. Also banks and institutions can alter the interest rates in the middle cycle if required.
Home Purchase Loan
The home purchase loans are the most utilized loans under this section. The motive behind the loan is to purchase a residential property. The institutions generally give out close to 80 – 85% of the market value of property as loans. The interest rates attached to the loan type can be fixed or hybrid or floating. The tenure behind such loans is more than 10 years minimum.
Home Construction Loan
This covers the purpose of construction of residence. The land should be owned or co-owned by the borrower in this scenario. Also the approval procedure includes some prerequisites for further processing in most scenarios. The first condition is rough estimation of the entire cost of construction and this should be informed beforehand. Second condition is that the buying of plots should have taken place within a one year time frame.
Also under this loan, a part of the land purchase loan is also included. The reason is the third condition behind this loan. The cost of land can be included in the loan amount. If it is not included then the construction cost would be taken as the loan amount by default.
Home Extension Loan
It is a subset of Home Improvement loans. The purpose is to expand the area of the house and make further improvements based on the change. The banks may vary the loan structure on the basis of the reason and purpose behind the expansion.
Home Restoration / Improvement Loan
As the name suggests this loan is for the renovation purposes of the home. This is availed generally by the people having shortage of liquid funds. Any work related to improvement of residence interior or external property on land of ownership is included under the renovation guidelines.
NRI – Home Loan
The loan structure and everything else is similar to a housing purchase loan. The major difference included in this type is the lengthy paperwork and document list to be submitted for availing loan.
Land Purchase Loan
The purpose behind the land purchase needs to be residential construction in this loan. Also the institutions provide 80 – 85% of the market value of land as loan amount.
COMPONENTS OF HOME LOAN
- Principal – Money that is taken from institutions.
- EMI – Equal monthly installments to be paid to the financial institution for lending the principal amount. EMI = Principal + Interest amount.
- Interest – As mentioned it is the interest amount applicable on the basis of the T&C of the financial institute.
- Duration of the loan – Time period behind the loan repayment process.
TAX BENEFITS ASSOCIATED WITH HOME LOAN
- The first benefit is the Interest amount paid in EMIs. It is a standard that the interest amount paid for the entire year is available for deduction from the total income of an individual. The maximum limit on the deduction amount is 2 Lakh Rs. The amount has been into effect since the A.Y. 18 -19.
- There are benefits attached with properties under construction as well. The interest charged in this case is pre-construction interest amount. For such a scenario the government gives away deductions in 5 equal installments. The installments begin after the construction is completed. The capped limit is 2 lakh Rs. in this scenario as well.
- The Deduction under section 80 C is regarding the principal amount. The capped limit is 1.5 Lakh Rs under such deduction. There is a prerequisite attached to this deduction. The property cannot be sold within 5 years of purchase. Stamp Duty and registration charges are also available for deduction under Section 80 C. However the stamp duty can only be claimed within the first year of purchase.
- Well in case there are two buyers of one single property, multiple tax deductions are available. The co-owners get 2 lakh Rs deduction of interest payment and 1.5 Lakh Rs of Section 80 C deduction each.