Home ownership is a special moment and most of us dream of having a beautiful home someday in our lifetime. However, with the rise of real estate prices, buying a home can be challenging for some individuals as people might have multiple financial obligations to cater to. This is where you can use a home loan to make your dreams come true. A home loan can help you buy the house of your dreams without thinking about breaking your savings.
Read this post to learn more about home loans, their benefits and the important terms to consider before availing one.
Overview of Home Loan
A home loan is financial assistance provided by major banks and financial institutions to individuals looking to purchase a home or property. The loan amount is generally used to cover a significant portion of the property’s purchase price, with the borrower repaying the loan amount plus interest over an agreed-upon period, usually ranging from 15 to 30 years. Many banks offer home loans with instant approval, less documentation, flexible repayment tenure, and competitive interest rates.
Benefits and Features of Home Loans
Here are the key benefits of a home loan:
1. Home ownership: The most significant benefit of home loans is that they enable individuals to achieve the dream of home-ownership. Home loans empower individuals to purchase property and establish a permanent residence for themselves and their families by providing access to substantial funds.
2. Tax Benefits: Home loans offer several tax benefits to borrowers in India. Under Section 80C of the Income Tax Act, borrowers can claim deductions on the principal repayment amount, while Section 24B allows deductions on the interest paid towards the home loan. These tax benefits help reduce homeowners’ overall tax liability.
3. Asset Appreciation: Real estate has historically appreciated over time. By investing in property through a home loan, borrowers stand to benefit from potential capital appreciation, thereby building wealth and securing their financial future.
4. Financial Leverage: Home loans allow individuals to utilise their existing financial resources and purchase property with minimal upfront investment. They enable borrowers to allocate their savings towards other investment opportunities or financial goals while still enjoying the benefits of home ownership.
5. Stability and Security: Owning a home provides stability and security to individuals and their families. It offers a sense of permanence and belonging, allowing homeowners to establish roots in their community and create a safe and comfortable living environment for themselves and their loved ones.
Important Terms Related to Home Loans That You Should Know
Here are some important terms you should always remember before applying for a home loan:
1. Loan Amount: The lender’s sanctioned loan amount depends on various factors, such as the borrower’s income, creditworthiness, existing debts, and the value of the purchased property. Generally, lenders finance a percentage of the property’s value, known as the Loan-to-Value (LTV) ratio.
2. Interest Rate: Home loans have fixed or floating interest rates. A fixed-rate loan maintains the same interest rate throughout the loan tenure, providing stability and predictability in monthly payments. On the other hand, floating-rate loans have interest rates that fluctuate based on market conditions, potentially resulting in varying monthly payments.
3. Loan Tenure: The loan tenure refers to the period over which the borrower agrees to repay the loan. Longer loan tenures result in lower monthly payments but may lead to higher total interest costs over the loan’s lifetime. Conversely, shorter loan tenures result in higher monthly payments but lower overall interest costs.
4. Down Payment: Borrowers must make a down payment towards the property’s purchase price, with the remaining amount funded through the home loan. The down payment amount varies depending on the lender’s policies, the borrower’s financial profile, and the purchased property type.
5. EMI (Equated Monthly Instalments): The EMI is the fixed monthly payment made by the borrower to the lender, comprising both principal and interest components. To make your EMIs easier, you can always use a home loan calculator. It helps estimate monthly EMI payments based on various loan parameters such as loan amount, interest rate, and tenure.
Conclusion
Home loans are essential for instant home ownership and realising the dream of owning a property. With flexible loan amounts, competitive interest rates, and tax benefits, home loans offer a convenient and affordable means of financing property purchases.
By utilising the benefits of home loans and free tools like home loan calculators, individuals can make informed decisions and begin their journey towards home ownership with confidence and financial security.