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Complete Home Loan Review

Complete Home loan review:

Home loan is a crucial loan and is regarded as a very important loan. You need to make sure that your home loan is sanctioned. Always make sure your documentation and your Cibil score is up to the mark before applying for the home loan .This would prevent a lot of heartburn in case your home loan is rejected due to your negligence.

What are home loans?

Home loans are availed from banks to buy or repair/renovate a house. Home loans are provided based on the market value, mainly estimation given by banks. Banks do not consider other charges like Stamp Duty, Registration Charges while sanctioning your home loan.

Home loans are repaid through monthly installments (EMI) spread over a tenure of 20 years. Some of the banks provide housing loans for a tenure extending up to 25 - 30 years.

What is a home improvement loan?

These loans are given for implementing repair works and renovations in a home that has already been purchased, for external works like structural repairs, waterproofing or internal work like tiling and flooring, plumbing, electrical work, painting.

Stages Involved in taking a loan:

Application: Apply for the loan with all the proper documentation. Sanction: You get approved for a specific loan amount based on value of the property and repayment capacity. Disbursement: Your loan amount is transferred to you.

Documentation:

  • Proof of age
  • Proof of identity and residence - passport, PAN card, ration card, voter ID card
  • Proof of continuity in the job for last two years or Form 16
  • Bank statement for last six months
  • Latest property tax paid receipt
  • Sale agreement and title documents in favor of the seller
  • Sale agreement or construction agreement with builder

Collateral for the home loan:

Security for the home loan is the deposit of the title deeds of the property for which the home loan is sanctioned and is marketable, clear and free from any encumbrances.

Applicants for the home loan:

Co-Applicant of a loan is the second signer of the loan and has as much responsibility to pay back the home loan amounts as the primary applicant. Your spouse can be a Co-Applicant of the Loan.

Should you take a Fixed Rate Or Floating Rate home loan:

Fixed interest home loans allow the repayment in fixed equal monthly installments over the entire period of the loan. The interest rates here are fixed and do not depend on market fluctuations .Here fixed rate is about 1-2.5% more than floating rate.

Floating rates have a certain base rate called index and a floating element called spread. If the base rate varies the floating rate varies .Market fluctuations affect interest rates on the floating rate home loan.

Tax benefits:

Principal portion of EMI can be claimed up to a maximum of INR 1 Lakh under Section 80C.Interest portion of EMI can be claimed up to INR 1.5 Lakhs under section 24. If you buy a house for the first time: You can claim tax deductions only if your home loan amount is less than 25 Lakhs. Under section 24 interest portions is tax deductible up to an amount of 1.5 Lakhs and an extra 1 Lakh deduction under section 80EE. The value of the property purchased should not exceed INR 40 Lakhs.

Prepay your home loans:
RBI has made it mandatory for all banks to stop the practice of charging penalty on pre payment of home loans taken on floating rate.

Down Payment
You need to pay 10-20% of the value of the house as down payment.

Processing Fee of the home loan:
This is 0.5 to 1% of the total home loan amount sanctioned. Banks do not refund the home loan processing fee as it is non refundable for whatever reason. Check the bank’s home loan eligibility criteria before applying for a loan.

Home loan balance transfer:
Home Loan Balance Transfer is a refinancing option to get the existing home loan in one bank transferred to another bank in order to avail the benefits of a lower interest rate.

When should you opt for a home loan balance transfer?

Your existing home loan is set at a very high interest rate and despite discussions with your bank there is no response. If your bank has reduced rates for new borrowers and you are an existing borrower with a high credit score. You approach the bank using the home loan balance transfer as a bargaining chip in order to secure a lower rate from the bank. If you have taken a home loan for a 15 Years tenure and you still have about 10 years of repayment left and the interest rates offered by another bank are 1% lower than the rates charged by your bank on the home loan then you use the balance Transfer Option where you shift the outstanding loan amounts from your bank to the other bank.

Home loan for a second house:

You can also take a home loan to purchase a second house as a long term investment. The interest you pay on the home loan is fully tax deductible if you give the second house on rent. You can also use the rent you collect to repay the home loan on this house.

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