7 Key Features Of Home Loans
Property prices have snowballed so much that majority of buyers have to avail of home loans to buy homes. This, in fact, has become a worldwide phenomenon. However, before you enter that territory, you must get a fair idea about the nature of home loans and how they function.
Here are seven facts about home loans every borrower must know:
- To begin with, you can buy a home loan on two rates of interest — floating and fixed. In the former, the interest rates change according to market conditions while in the latter you pay a fixed rate for the entire tenure.
- It is not just for the purchase of a new home that you can avail of a home loan. You can also take a loan for the purchase of a secondary house or a plot. You can also take a loan for repairs and refurbishing of your old home.
- Bank do just enable you to buy your dream home. They also help you avail of tax deductions. Under various Sections of the Income Tax Act, a borrower can avail of deductions on the principal as well as the interest component of the home loan. In India, a borrower can claim deductions under Section 80C of the I-T Act for the repayment of the principal component. The limits in this regard are set at Rs 1.5 lakh. Section 24 of the Act, on the other hand, allows borrowers to claim deductions on repayment of the interest component. The deduction limit here is set at Rs 2 lakh.
- You can always prepay your home loan to shed the financial burden before time. More importantly, you do not have to pay a penalty on pre-payment after the Reserve Bank of India in 2013 directed banks to waive charges for loans taken on floating rate of interest. However, banks still charge a penalty on transfer if you have taken a home loan at a fixed rate of interest.
Also read: Are Home Loan And Mortgage Loan Different?
- You can also transfer your home loan from one bank to another, if need be. This is often done to bring down the cost of the loan. For instance, you took a loan from bank A, which charges you an interest of 11 per cent. You can transfer your home loan if you hear of bank B offering you a home loan at an interest rate of nine per cent. However, banks often charge an amount to transfer the loan.
- Generally, home loans do not cover the money you have to pay as stamp duty and registration charges. These two components raise the total cost of the purchase to a great extent ― you have to pay about six per cent as stamp duty and one per cent as registration charges ― and a buyer has to often arrange the amount from his own pocket.
- Your age and professional eligibility will be the defining factors based on which a bank may nor may not sanction you a home loan. For instance, it's easier to avail of a home loan when you are younger and earn a handsome package. With age, your loan eligibility may come down even if you earn a good monthly income.