Millions of consumers dream of owning a home and may sometimes get overwhelmed by the sheer expense of this proposition. However, with a little help from your bank, you can expedite the process, and turn this dream into a reality, sooner. The first step is to get savvy about what is a Home Loan, know the unique benefits, and the types of Home Loans available in India.
Home Loan definition
So, what is a House Loan (also known as Home Loan)? How does it work?
A Home Loan is a type of secured loan, where the bank lends you a lump sum of money to help purchase your new home, and the home itself serves as collateral.
You need to make monthly payments for a fixed tenure to the bank, to repay the loan. If you fail to make the repayments on time and in full, the bank can take possession of the home. On the other hand, after making all payments, the home is fully owned by you.
Benefits of a Home Loan
- One of the top benefits is that you get to take instant possession of your new home once your bank releases the payment to the seller.
- It might be challenging to buy a home if you are required to make a lump sum payment upfront. On the other hand, with access to a Home Loan, you can pay in instalments as per your cash flows.
- You can claim a tax deduction of up to ₹1.5 lakh under Section 80C of the Income Tax of India 1961, in one financial year. A deduction of up to ₹2 lakh is allowed on what you pay as interest under Section 24B of the Income Tax of India Act.
- You no longer need to stay in a rented house and pay rent.
Important terms of Home Loan
Principal amount
This is the total amount of money lent to you by the bank.
Loan to value ratio
According to the Reserve Bank of India (RBI), banks are not allowed to fund 100% of the cost of your new home. The bank will follow RBI guidelines when deciding the percentage of the cost that they will be able to loan you.
Rate of interest
This is the percentage of interest charged by the bank on the principal amount. Typically, the value of interest decreases as the loan tenure progresses.
Tenure
This is the number of years and months during which you must repay the loan
Equated Monthly Instalments (EMI)
This is the amount, including a portion of the principal amount and interest, which is paid by you to the bank each month for a fixed tenure.
Also Read: Ways to choose the right Home Loan for your needs
Types of Home Loans in India
Home Loan
A type of secured loan that helps fund the purchase of a new home property.
Home Renovation Loan
Also known as a Home Improvement Loan, this loan covers renovation expenses such as painting, fixing, repairs, and remodelling of your existing home.
Home Construction Loan
This loan is taken to help build your home on a plot of land owned by you.
Loan Balance Transfer
This loan enables you to shift from your existing loan service provider to a new one that may offer better terms and conditions such as lower interest rates and longer tenure.
Composite Home Loan
This is a hybrid loan that covers the purchase of a plot of land and consecutive construction of the home, within a fixed timeframe.
Loan application process
- Fill out the loan application form and submit it online. Alternatively, fill out a form physically at your nearest bank branch. Include the proof of identity, address, date of birth, signature proof, and proof of income.
- Pay the non-refundable processing fee.
- The bank will review your application, and a bank representative will reach out for further inquiries and documentation verification.
Also Read: Navigating the Home Loan process: 6 key considerations
The key takeaways
Once you have thoroughly understood the Home Loan meaning, its benefits and the types of loans available, you can apply for your desired loan. Axis Bank offers affordable, flexible Home Loans. Enjoy perks such as EMI waivers, no prepayment charges, and flexible and floating interest rates. If you're looking to switch loan providers to access better terms, you can choose a
balance transfer Home Loan. Choose wisely and pave the way for an enjoyable stay at your new home.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
