Buying a new home can be a confusing and complicated experience for many. Anticipating the tricky questions that will confront you, we have put together some simple answers for the most frequently asked queries. We hope these answers and views will serve to allay some of your doubts and make you a more confident home purchaser.
Acquiring a home loan is a crucial part of the home buying process. Therefore, prior knowledge of home loans so that you choose the one best suited to you is a must. The following points we believe will provide insight into the dynamics of home loan selection process.
Home loans vary in three major ways and these differences have crucial financial implications for you. First, they differ on the length of their tenures. Second, they vary in the way their interest rates are calculated. The third difference is the various processing fees that are charged. These three parameters should be used to evaluate the cost-effectiveness of various options.
Loan tenures range from 5-20 years, and you need to choose yours depending on factors like number of working years left, repayment ability and cash flow needs. The longer your tenure, the greater your total interest costs. Interest cost goes up with the length of the home loan tenure.
With fixed rate loans rates are fixed for the tenure of the loan, in case of floating rate loans, the rate is benchmarked to a retail lending rate of the lending institution and moves in tandem with it. This means in case of floating rate loans, the total interest you pay out during the tenure is dependent on the way interest rates move during it. The rate is reviewed periodically every six months and re-fixed in relation to prevailing market conditions. Currently, fixed rate loan schemes carry interest rates that are higher by 0.5 to 0.75 percentage points compared to the floating rate loans. At this stage, we need to point out that many home loans being marketed as fixed rate products have provisions in the loan agreement that allow the lender to revise the rate after a certain period of time in the tenure. This effectively renders such loans as floating rate loans.
Housing loan will be sanctioned depending upon your repayment capacity and according to your income. Your spouse’s income can be included, if you want to increase the amount of your loan. The maximum loan that can be sanctioned varies with housing finance companies and ranges from Rs. 10 lakh to Rs. 1 crore.
Tax benefits are available on both the principal and interest components of the loan as per the Income Tax Act. The upper limit of the amount of deduction of interest repayment allowed from your gross total income is now Rs. 1,50,000 p.a. Besides, Sec. 88 offers you tax benefits for principal repayments.
A Home Extension Loan is a loan which helps you to meet the expenses of any alteration like extension / expansion or modification of your home. You can avail a Home Extension Loan, after obtaining the requisite approvals from the Municipal Corporation.
A Home Improvement Loan is one that is made available for you to do certain external work like structural repairs, waterproofing or internal work like tiling and flooring, plumbing, electrical work, painting etc.,