All you need to know about Home Loans

Banks or Non-banking Finance Companies (NBFCs) give you long-term home loans if you do not have the funds to buy a house. Having your own home is every person’s dream. It provides:

•       financial security.
•       Income Tax relief.
•       a support system in emergencies.
•       the convenience of living as per your choice.

By paying a fixed amount in the form of monthly instalments to the bank or NBFC, you repay the principal amount and interest of the loan throughout the loan tenure, whether it is 10, 20, or 30 years.

A Home Loan proves to be very helpful in fulfilling your dream of a home. All you need to do is raise 10 or 15 percent of the total cost of the house. You can take a loan from a bank or NBFC for the balance amount to buy your home based on the income from your job or business once you accumulate the amount needed to make the down payment.

Home loan eligibility is determined as follows:

•     A person can ideally get a loan of 60 times their total income per month.
•   Generally, banks consider 40 percent of your total monthly income as necessary for personal expenses. After this, the home loan is given according to the remaining amount.
• For example, if your monthly income is Rs 60,000, the bank assumes that your expenses will be Rs 25,000 per month. If you have not taken any other loan like a car or personal loan, you can get up to Rs 35-40 lakh as a home loan for 20 years at a 9% per annum interest rate
•       Suppose you have taken any other loan (i.e., Car or personal loan etc.) which is operational. In that case, the lending bank will consider the loan amount after deducting the monthly instalment from your income.
•       If you want to take a loan and your credit score is incorrect, or you have defaulted on any previous loan/borrowing, the bank can refuse the loan.
•       You can improve your eligibility by taking a loan for a longer tenure.
•       If you are a salaried employee or own a private business, then the loan eligibility for both may differ.

Why should you take a home loan?

Taking a loan facilitates you in three major ways:

•       you can buy property for use
•       avail income tax savings
•       make an investment in real-estate

If you buy your home by taking a loan, then the value of your house keeps on increasing over time. However, the increase in property prices may vary depending on the connectivity of the area, demand-supply situation, and income of the people living in that area.

The amount to be repaid as a monthly instalment of the loan consists of both principal and interest. If you think in terms of interest, then under section 80C of the Income Tax Act, you can get income tax relief on payment of Rs 1.5 lakh in a year.

Along with this, there is a separate income tax exemption on amounts up to Rs 2 lakh in a year for the amount you have paid as interest in the loan instalment.

If you live in your home, job or business, in any respect, you can concentrate on your work by staying free from the hassle of home shifting.

Home loan interest rates

Home loan interest rates are at their lowest level in 2021. There has been a steady decline in these since 2020. According to findings, the lowest interest rate for loans was around 8.40 percent at the beginning of September 2019. At the same time, the lowest level of loan rate in 2020 was around 6.80 percent. The lowest home loan rate in July 2021 is in the range of 6.49-6.95%.

The loan helps you to fulfil your dream of a home. Mostly, people look for loans available at very low-interest rates. Most loans varying from Rs 30 lakh to Rs 75 lakh are approved. You still have the opportunity of cheap loans. Many banks give you loans at very low-interest rates; if your credit score is good, you will get a loan below 7 percent.

There are two main reasons for the decline in home loan interest rates. Since October 1, 2019, most banks have linked their home loans to the repo rate. The second reason is that the RBI has kept the repo rate at 4 percent since May 2020 by reducing the repo rate. The repo rate in 2018 was 6.50 percent. In such a situation, it can be said that for those who wish to take their home via taking a loan, this can be the best opportunity to do so. If you find this article informative, please share this information with your friends and relatives.