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Personal Finance: 6 Key Factors That You Need to Know About Home Loans

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By Daisy Andrew

Any amount of money borrowed from bank or financial institution on fixed/variable rate of interest and some terms of payment for purchasing or construction of house is termed home loan.

When the amount of loan and interest is repaid, the lender gives back the deed/ title of property to the borrower. The amount of loan granted depends on the type of home loan to be taken, income, individual, resident, or nonresident.

In general, it is seen that the percentage of loan varies but maximum is 80% – 85% of property cost. If the property is under construction property for which loan has been applied for then the loan amount will be disbursed as per construction plan schedule.

The tenure for repayment depends from one financial institution to another; it may vary from 3 years to 30 yrs.

1. Finding Better deals

We are very familiar with the fact that buying home is not so easy it’s a greatest expenditure and quite stressful also. Getting a better deal, which suits our circumstances are difficult to search for. Many a thing should be kept in mind such as looking for lower rate of interest, repayment terms and condition, financial feasibility, tenure of loan, lenders flexibility, etc.

Take your time, go through the terms and condition of different financial institution, and help yourself to choose out the best.

Home loan can be of different types such as: –

  • Home improvement loan – As the name itself suggest it’s meaning that any amount borrowed for restructuring or renovating or improving the condition of home.
  • Home extension loan – This loan is taken when one wishes to add additional space or any extra room to their property.
  • Loan against property – This type of loan is taken on property owned by borrower.
  • Land purchase loan- Loan provided for buying land to construct flat or to building or house.

2. Rate of Interest and its type

Rate of interest on home loans may either be fixed or floating or partly fixed and partly floating, as per borrower’s requirement. Rate of interest may vary as low as from 8.35% to 10% depending upon the lender.

3. Other cost

Not only interest expense is incurred during the tenure but initially other cost such as processing fees, documentation fees, legal fees, and application fees and lastly pre-payment charges (up to 2% of prepaid amount) at the time of foreclosure.

4. Documents needed for sanction

There is a list of documents including residence proof, identity proof, salary receipt (in case of job), or ITR (if businessman), bank statement, pan card number, etc. given with the loan application form which is required to be attached along with a photograph.

After verifying documents, the bank decides whether the loan will be sanctioned or not. If loan is sanctioned then what amount and at what interest it should be given, is determined. Bank will provide you with a statement in beginning of the year showing the amount of principal and interest to be repaid during the year. This statement is useful in claiming tax deduction also.

5. Repayment

Terms of repayment is stated in form and accordingly you can repay either through ECS (electronic clearing system) i.e. instruction for auto pay from bank, postdated cheque can be issued.

6. Insurance on home loan liability

It’s not a compulsion to get your home loan liability insured but it will just free the family from burden of loan taken. Either you just need to pay premium one time or regular depending on the insurance plan you choose.

So, do keep these aspects in mind and get the best of home loans.

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