Whether you want to buy a house to live in or invest in, it makes sense to apply for home loans for two reasons. One is that you will have reserve money for any property damage or other necessities. And you may have some money to invest in other areas.
What are home loans?
Home loans are the type of loans you can get for purchasing houses or constructing them on land you own. You can also apply for home loan for renovating your existing house. These can be loans against the property because you can pledge your house as security. The loan against property interest rates is lower than other kinds of housing loans.
You repay a home loan in Equated Monthly Instalment scheme or EMI, where you pay a fixed monthly sum. The sum depends on the loan amount and the interest rate.
Factors affecting the eligibility for a home loan:
- Income and repayment capacity
- Age
- Financial Profile
- Credit History
- Credit Score
- Existing Debit/EMIs
- Number of dependents
- Your spouse’s income
You can apply for home loan anytime after deciding to start construction or purchase. It doesn’t matter whether you have begun construction or chosen the house to buy. You can even apply as a Non-Resident Indian.
Types of loans based on interest rates:
- Fixed interest rate: the interest would be the same for the entire loan period.
- Floating interest rate: the interest can change from time to time depending on the market conditions.
- Combination interest rate: this type of loan has part floating interest rate and a fixed interest rate.
Benefits of Home Loans
Tax Benefits
As per sections of the Income Tax Act, under sections 80c, 24(b), and 80EEA, you can deduct the interest portion paid during a year from your taxable income up to two lakhs. And you can deduce the repaid principal amount up to 1.5 lakhs. But to get these claims, either you should buy a ready-to-move-in house or complete the construction.
Growing your capital
It is usually better to take home loans as you can invest the rest of the money in various financial instruments. These instruments usually will have higher returns than the interest you pay for a home loan.
Liquidity Benefits
You will have spare money if you apply for a home loan. You can use this if you ever have an emergency. Otherwise, you would have to get personal loans if you exhaust your savings by purchasing a house. And this loan may have a higher interest rate.
Fraud Protection
Banks will verify everything connected when you apply for a home loan to purchase a property. That means you can ensure that all the related documents are correct because the bank has verified them.
When to apply for home loans?
- When you have no other credits
- You will have few responsibilities if you have no other credits, like a student loan, car loan, etc. That will reduce the stress. Additionally, the loan interest rates will be very high if you already have unpaid loans.
- When you have adequate savings for a down payment
- You may not be able to get the entire loan amount. The amount depends on several factors, like age, income, etc. The remaining amount is the down payment you pay before getting your loans sanctioned. So only apply for a loan if you have enough savings for a down payment.
- When you have long work experience and a good pay package
- Having a long work experience and a good pay package will ensure you clear the loans with minimum stress. Additionally, you will get a higher loan amount at a low-interest rate.
- When interest rates are low
- Check for bank advertisements to be up-to-date on the interest rates. They vary frequently. Therefore, you will know when the interest rates are relatively low. Applying for loans at that time will get you a loan at a lower EMI.
In conclusion, home loans are beneficial if you want to retain money for emergencies or investments. That way, you won’t have to get another loan at a higher interest. However, ensure that you have enough savings for the down payment, don’t have other credits, and apply when the interest rates are low. For example, the loan-against-property interest rates are always low.
