When you think of buying a house and moving forward to look for your perfect dream house, the biggest constraint you would find out is that you are unable to finance your new house. At this point you would consider financing your house with a home loan.
Home loan is a secured loan which can be availed by the financial institution/bank against the security of some property/house. A borrower can take a home loan from the bank which is issued against the property or security intended to be bought from the home loan with a condition to give ownership over the property to the banker. In simple words, when the borrower unable to repay the loan, the banker can recover the money by selling off the secured property.
The total loan amount is subjected to the repayment capacity of the borrower and the maximum amount that can be availed as a home loan varies between 50%-100% of the total cost of your home. Generally, the total amount of monthly installment to be repaid by the borrower should not exceed 40%-50% of his gross monthly earnings.
Benefits of Home loans
These days, taking a home loan to buy either a new house or reconstruct an existing has become very simple and most beneficial in India. In fact it might be a good idea to avail home loans, because they offer number of added advantages as well.
Types of interest rates
You can avail the benefit of fixed and variable interest rate home loans. Most of the existing interest rates fall in the range of 7.75% to 8.75% with 1%-2% processing fees. There are lenders and financiers who offers same rate of interest for home improvement loan.
Cutting interest rates
Availing home loan has become very simple and most preferred way for home finance. The RBI has been regularly decreasing interest rates. As a result of which, the interest rates of housing finance loans have been decreased considerably in last four years. Even the Government of India has sole concentration on housing and construction sector, announces improved tax exemption limit at the time of budget every year. Besides this, the housing finance companies in India also aggressively wooing the borrowers.
Security against the home loan
The security against the home loan is also one of the benefits of taking home loan. This means you can use the property as a security for which you are availing home loan. However, the banks and financial institutions do not finance more than 85% of the cost of mortgaged property.
Tax benefit
The most important benefit of taking home loan is the tax benefit. The principal amount and interest to be paid on the home loan is deducted from the annual value resulting in lower taxable income. Under section 24(d) of Income Tax, the interest paid on the home loan is up to maximum of Rs. 1, 50,000 and under section 80(c) of Income Tax, principal amount of the loan is eligible for tax deduction up to maximum of Rs. 1, 00,000.
