Banks offer home loans in order to provide financial support to individuals who wish to acquire or construct a house. A borrower must return this amount with interest to the lender to repay the debt.
In this article, you will find out what a home loan is, what are its types, and how can it help you.
Buying a house requires a considerable amount of money. Hence, purchasing it can put a person under a lot of financial constraints. The first question that may arrive in almost every home buyer’s mind is how to finance the purchase. This is where home loans come into the picture.
A home loan is a secured credit that banks provide to the borrowers who want to purchase or construct a house. A lot of home buyers depend on their lender’s support to acquire a home. Due to the availability of many lenders, it has become easy for applicants to borrow a loan. Hence, thousands and thousands of individuals now live in a home they can call their own.
Due to this increasing demand, banks have created different categories of home loans in order to meet the needs of a home buyer better. Contrary to what many people think, home loans need not be availed only to purchase a house. They can be provided for construction, renovation, etc.
Types of Home Loans
- Home Purchase Loan
Home purchase loans are the most common type of home loans. They are taken to buy a new or pre-owned house. Many lenders offer home purchase loan. However, their interest rates and processing fees might be different. A borrower can choose to pay a loan at a fixed or a floating rate of interest.
- Land Purchase Loan
Land purchase loan is given to applicants to wish to buy land in order to construct a house. These loans can help a borrower get 75-85% financial assistance from the lender.
- Home Extension Loan
Home extension loans help homeowners who want to expand their house with new rooms. Banks provide this loan to people who wish to make alterations to their home’s structure.
- Balance Transfer Loan
Borrowers who think they are paying home loans at a high interest rate can transfer their loan to a different bank. With balance transfer loans, borrowers can reduce their financial liability.
- NRI Home Loan
People with NRI status too can buy a property in the country. NRI housing loan provides financial aid to acquire, construct, or renovate a house.
Benefits of Home Loan
- Fulfil the dream of buying a home
For most individuals, buying a house may seem a distant dream without financial help. It is impossible for many to muster the exorbitant sum required to acquire a home. But home loans can turn that dream into a reality. A borrower with a good repayment capacity can easily avail a loan and pay it back in EMIs.
- Tax Benefits
An important advantage of availing a home loan is tax benefits. Under Section 24B, a homeowner can claim tax benefits on the EMIs paid. However, the deduction limit is Rs. 2 Lakhs. Also, a person can claim a tax deduction up to Rs. 1.5 Lakh under Section 80C.
- Capital Appreciation
Due to the rising demand for real estate properties, prices of homes constantly move in the upward direction. Hence, a house’s value, as a capital asset, increases by the time a borrower reaches the end of the loan tenure. Normally, after the tenure, a home’s cost will be higher than its original price and the interest paid.