Home loans are secured loans provided by banks and housing finance institutions. Loans are provided for Resident and Non Resident Indians for
Home loans are available in different forms for different purposes: –
Home Loans are provided for
Top up loans are given over and above the existing home loan for personal or business use. The end use of top up loans is generally not monitored and can therefore be used for any legal activity such as marriage, higher education, vacation, buying artefacts, home furnishing, closure of other loans, etc
Two of the major criteria for availing a home loan are income eligibility and property eligibility. The others being loan terms, conditions, and other criteria.
Income Eligibility Criteria
The home loan eligibility on income depends on factors like your occupation (salaried/ self-employed) and continuity in the same, age, your monthly or annual income, the interest rate charged by the bank, Existing liabilities or serviced loans/EMI s, Credit history and the tenure of the loan.
|CRITERIA/PROFILE||Salaried||Self Employed/ Professional/Consultants|
|Age||Min||18 Years||18 Years|
|Max||60 Years or retirement age whichever is earlier at the time of loan maturity.|
65 Years at the time of loan maturity.
*Deviation up to 70/75 yrs on profile basis.
|Minimum Work Experience / Existence in Business||2 Years In Continuous Or In Part.||3 Years in same line of business.|
|Minimum Income Required||2 Lakhs Per Annum||1.5 lakhs Of Income filed (Net Profit) Annually|
Property Eligibility Criteria:
Loans are provided for all residential properties like Independent Houses, Villas, Bungalows, Apartments, Row Houses ...ETC. The selected property submitted for loan must be:
*Current Home Loan Interest rates -TAB /Coloumn depicting the same + Brief EMI Chart*
Applicable rate of Interest on home loans depends on the quantum and tenure of the loan. It also depends on the applicant’s credit profile and the property selected. Interest rate also varies based on the type of loan taken and the financier.
Banks and financial institutions offer Generally two types of interest rates
Generally not affected by the fluctuation in benchmark rates till the fixed period.
Applicable interest rate is calculated as
[ Benchmarked lending rate + / - (margin or spread)] = Applicable (Fixed or Floating) Interest Rate.
While the benchmark lending rate is subject to change or fluctuate, as per the market conditions, economic policies and regulatory scenarios, the margin / spread must remain unchanged for the entire tenure of the loan, unless changed by the bank on request.
Any loan availed needs to be repaid and that too with interest. Like any other loan, Home loan is repaid in Equated Monthly Instalments (EMI), typically EMI includes principal and interest built into one single payment
The interest is calculated generally on a monthly (or quarterly) reducing balance mechanism; meaning the interest is only charged for the principal outstanding as on each month or quarter and not for the entire loan sanction amount. Nowadays Calculation of interest on yearly reducing balance mechanism is very rarely followed.
The interest component in the EMI would be larger in the initial months and gradually decreases with advancing tenure whereas the principal payment will be lower initially and increases as the tenure advances.
Pre-EMI - where only the interest component for the disbursed amount is payable - is normally applicable for loans on properties under construction where the amount in disbursed in parts.
(EMI/ Pre EMI can be paid through electronic/online standard instructions. This mode is set before disbursement.
FEES & CHARGES
Banks do not allow closure of home loans unless the top up loan is cleared first.
|Top up loan||Loan applicant|
|Purchase Loan||Seller/Builder of the property|
|Land Purchase Loan||Seller/builder/developer of the property|
|Construction Loan||Loan applicant|
|Home Improvement/ Extension Loan||Loan applicant|
|Balance Transfer Loan||Bank / institution that has provided the existing home loan; balance if any, to the loan applicant|
|Refinance of purchase/construction Loan||Loan applicant|
The property for which the loan is provided is retained by the bank or financial institution as security against the home loan. Certain times additional security may be insisted for reasons assessed by the lender/institution.
Note. The original documents of the property are not to be laminated, mutilated, or lost. If so the same needs to be informed to the bank in advance (at the time of login to the system or prior verification) if not the proposal will be rejected
Banks/financial institutions hold and create security of the provided property in two different methods.
Acknowledgement for the deposit or submission of all the original property documents will be provided by the bank/Financial Institution.
Apart from building up an asset-base, investment in properties through home loans helps reduce tax outgo through tax benefits. The government offers tax benefits to salaried and self-employed individuals for home loans availed in India. NRIs can also claim these benefits provided they have taxable income generated in India through salaries, business, interest income, consultation fees or rentals.
The govt of India allows deduction of income for Tax advantages through two sections of the income tax act.
1. Deduction under Section 80C – For principal repayment
All benefits under this section will be reversed if the property is sold within 5 years from date of possession.
2. Deduction under Section 24(B) - For interest repayment
Apart from the applicant, co-applicants can equally claim income tax deduction under section of 80(C) and 24 (B) if proof of contribution (like the interest certificate from the financer reflecting name) for the EMI’s is duly submitted.
In case of salaried employees, tax deduction can be claimed along with HRA (house rent allowance) benefits if the property on which the housing loan is availed is in a different city or if commuting to work from own property is difficult.
*Please consult your chartered accountant or financial accountant for more information on tax implications with reference to your income.
Given the risks and uncertainties our lives are fraught with, it is always recommended to obtain an insurance cover for the borrower as well as for the constructed building / home. Although banks and financial institutions do insist on insurance of the applicant and the property, it is highly recommended even though not mandatory. While a life insurance cover will ensure that the burden of debt does not fall on the surviving members of the family by enabling repayment of outstanding loan liability, the property or home insurance will cover damages caused to the physical property and enable compensation of financial loss incurred.
Both life,Health and home insurance cover or policies are available as part of the home loan package. The premium can be added back to the loan amount and can be financed if the policy is taken as a package with the home loan.
These can also be availed as stand-alone policies for a predetermined premium. If required Standalone insurance policies from third party insurers can even be assigned to the loan. Some loan providers even offer a free accident policy along with the home loan.
Banks or financial institutions offer three types of Insurance options.
1) Life : Health Insurance: life insurance as single premium term polices are offered for the applicants against any eventuality of his or her Life because he being the breadwinner for the family. In the event of eventuality to the life of the applicant this policy will work as a shield against the burden of the loan by enabling repayment of outstanding loan liability and makes sure that the assets can still be enjoyed by the surviving members of the family as before.
The premium paid for the life insurance with the home loan is deductible under the section of income tax act 80(c) act..
2) Property Insurance or Home Insurance* is available against any damages caused for the building and its contents* against any natural or man made hazards or calamites. Any completed standard construction property can be insured for a value not exceeding its reconstruction value. In case of damage to the property, only the reinstatement value – or the cost of reconstruction - is reimbursed to the applicant subject to the maximum insured amount; cost of land is nor insured nor reimbursed at the time of claim. Insurance cannot be done for market value as market value of any property includes land and other factors which determine the same.
3) Home Content Insurance is available against any damages caused for the contents and valuables against any natural or man made hazards or calamites including theft or burglary. This policy can be taken to insure the contents of a home such as furniture, household appliances, jewellery and other valuables
The home insurance and the home content insurance does not have any direct tax benefit for the premium paid under the income tax acts.
*Home insurance and home content insurance are two different types’ of policies and need to be taken separately as the one will not cover the other.
The availability of property and life insurance depends from location to location depending on banks/Financial institution. Certain banks and financial institutions may provide both life insurance and property insurance at certain locations and may only provide either one of them at certain other locations.