Buying a home is thought to be a big step in your life. This combines various emotions like anxiety, frustration, and a huge sense of accomplishment. Also, with the rising rates of property, it is difficult to buy a home through your investments entirely. Thus, many of the individuals avail Citibank Home Loan, Axis home loan or home loan through other lenders to buy a home. However, as a home loan requires a big-ticket amount and is a long-term loan, it comes across as a liability. Despite being a liability, the availability of different benefits on home loans is one of the major things that work best in favour of home loan borrowers. Before we touch upon how a home loan works in favour, let us elaborately discuss what is meant by a home loan.
What is a home loan?
A home loan is a credit option availed by the borrowers to fund their dream house. Through a home loan, you can borrow a huge amount from the financial institutions at a specific rate of interest (ROI), which must be repaid in the form of EMIs for a higher tenure that goes up to thirty years. Remember that in home loans, you are permitted to borrow finances of up to 75 to 90 percent of the property’s value based on the loan amount. The rest amount requires to be funded by the borrower in the form of a down payment component.
As a home loan is a secured loan option, the home you purchase through a loan is considered collateral by the financial institution. In the event of repetitive EMI default, lenders might recover the amount through property or home sales.
Listed here are few of the major benefits of a home loan:
One of the important benefits of availing of a home loan is a tax deduction that you can avail of on the principal and interest repayment on a home loan. You can easily claim up to 1.5 lakh on the principal component according to Section 80 C & up to Rs 2 lakh on the interest repayment as per Section 24 B.
Availability at a reduced interest rate
The home loan is a secured loan option, is available at a lower interest rate. An interest rate of the home loan begins from 6.40 percent p.a. onwards. Banks and HFCs provide lower interest rates of less than 6.80% p.a. are Citibank home loan, Axis home loan, Kotak Mahindra Bank, Bank of Baroda, Punjab & Sind Bank, Punjab National Bank, ICICI Bank etc.
Availability of higher repayment tenure
Unlike different other loan options, a home loan is a big-ticket loan option that is available at a higher repayment tenure of up to 30 years. Owing to the availability of a higher repayment tenure, you can select the repayment tenure depending upon your repayment capacity.
No prepayment charges are charged if a home loan is a floating rate.
As RBI strictly disallows all lenders from charging the borrowers prepayment or foreclosure fee on floating rates, those loans availed at a floating rate do not have any foreclosure or prepayment fees. Though many lenders providing a fixed rate home loan might charge a foreclosure or prepayment charge, some lenders might not charge any foreclosure or prepayment charges if the loan repayment is made via your own funds.
Can avail a top-up home loan to mitigate exigencies or other monetary mismatches
Just the existing borrower of a home is eligible to avail of the top-up home loan. Note that such loans are the same as personal loans where the borrower can use the loan amount for mitigating various big-ticket expenditures like home improvement or renovation, car purchase, personal travel, child’s higher education, medical expenditure etc. Thus, there is no restriction on the usage of funds on top-up home loans except if the proceeds are used for speculative purposes. The presence of zero restriction on the fund usage via top-up home loans makes the credit option an alternative to personal loans and loans against credit cards. Also, note that such loan options come at a lower interest rate, which might be slightly higher than the home loan interest rates with a higher tenure, which is dependent upon the underlying home loan’s left tenure. Availability of lower interest rates and higher repayment tenures make the top-up loan the cheapest credit option that is available to the existing home loan applicants that alternative loan options, like personal loan or loan against credit card.
What are the popular tax benefits on the home loan available in India?
Home loan is considered the biggest tax saving option due to the availability of different tax deductions that is available according to Section 80 C, 80 EEA and 24 b of the income tax act. While an eligible home loan borrower can claim a thorough tax deduction of up to Rs 5 lakh where Rs 2 lakh is permitted on interest component according to Section 24 b, Rs 1.50 lakh tax deduction is permitted on principal components according to Section 80 C, and Rs 1.50 lakh tax deduction is permitted on the loan interest component according to Section 80 EEA if you meet the stated eligibility norms.
What are the crucial benefits of availing of a home loan?
Home loan benefits are available at a Best Home Loan Interest Rates beginning from as low as 6.40 percent p.a., higher repayment tenures of up to 30 years repayment tenure and involvement of zero prepayment charges in case of floating home loan. Other advantages include the availability of home loan tax benefits and availability of top-up home loans to only the existing borrowers of a home loan at a lower rate of interest than their alternative credit options like personal loan or credit card loans to mitigate fund mismatches or to witness financial exigencies.
Why do individuals opt for home loans?
A home loan is a big-ticket amount that spans over a decade. It comes across as a rescue as lenders permit you to purchase a dream home by finding the home’s cost. Also, the rate of interest on a home loan is on the lower side, with its tenure going up to 30 years, allowing applicants to avail of a home loan based on their capacity to repay. Note that the option of prepayment is always available at no cost in case you avail home loan at floating rates.