What is Home Loan ?
A Home loan is a sum of money that an individual borrows from a financial institution or bank to purchase a house. The amount borrowed from the bank is paid at a certain rate of interest with the EMI every month.
The property is usually taken as a security by the money lending company for the home loan. This means, if the borrower cannot pay back the dues in the agreed term, the lender possesses all the legal rights to retrieve the unsettled loan amount by sale of the property in subject. The property can either be personal or commercial. In order to secure the loan taken by the customer, the bank uses the customers’ property (home) as a security. This the reason home loans are considered to be secured loans as it involves a low-level risk of the lender. If the customer is unable to pay back the loan in due time, the lender can legally auction off the property to recover the unsettled loan amount. Also, the interest rate of the home loans is comparatively lower than the interest rate of other loans such as personal loan, which makes it more secure.
The customers can jointly apply for the home loan with their spouse, family members or others as co-applicants. The amount of the loan is usually based on the income, credit history locality of the purchase and various other factors. These loans have a longer repayment tenures ranging from 5 years to 30 years, but the tenure has to fixed by the customers at the time of applying for loan.
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Benefits of Home Loan
Tax benefits : Government of India encourages more people to buy their own home by providing tax deduction on the principal as well as interest paid on home loan. An individual is qualified to claim a deduction of up to Rs.1.5 lakh under Section 80C of Income Tax Act of India, 1971 in a financial year. A deduction of up to Rs.2 lakh is allowed on the interest portion under Section 24B only when the construction of the house is complete. Income tax deductions cannot be claimed when the property is under construction.
No Prepayment Charges : Lenders do not charge any prepayment penalties from its users on payment made towards home loan. So, whenever there is surplus money with the user, they can make partial payments towards the home loan and lower the burden.
Balance Transfer Facility : If the user finds another lender for the home loan at a lower rate of interest, then they can transfer their loan to different lender.
Capital Appreciation : Since the property prices rises over time, it leads to capital inflation and thus becomes one of the major reasons to invest in a property.
High Repayment Tenure : Home loan has the longest repayment tenure of up to 30 years among all types of loan. With this facility, the user can extend the Equated monthly installments (EMI) by extending the tenure.
Tax Benefits on Second House : In case of purchase of second property, the customer is eligible to claim deduction for whole amount of housing loan interest paid under Section 24B of Income Tax Act.
Types of Home Loan
Banks and loan providers come up with various types of home loans for different purposes according to the varying needs of the client. This is a relatively broader category with the following sub-types:
Home Purchase Loans:
As the name suggests, this type of home loan is availed for buying a new home. Interest rate is either fixed or floating and ranges between 9.85% and 11.25%.
Land Purchase Loans:
This loan is availed for purchasing a plot of land for construction or as an investment. Similar to that of home purchase loan, the only difference being that it is availed to purchase a vacant plot.
Home Construction Loans
: This loan can be availed only when a customer owns a land and plans to start construction of their house on it.
Home Improvement Loans :
These loans are availed by customers only when they plan for renovation and repair works like external and internal repairs, electrical renovation, overhead water tank construction, etc.
Home Conversion Loans :
It is a very expensive category of home loan where a customer can transfer the current loan to a new house.
This means a customer has already purchased a house with a home loan but desire to shift to a new house, for this, conversion loans can be availed.
Home Extension Loans:
A customer can opt for this loan when they decide to have alterations in the current structure of the house by adding more space for new bedrooms, balcony, etc.
Home Loan Eligibility Criteria & Required (Common)Documents
Home Loan eligibility criteria differ for each banks/lender but applicants age should not be more than 70 years at the time of loan maturity
Common Documents List For Home Loan
- Home Loan Application Form with one passport size photograph.
- Proof of Identification:
- Ration card
- Driving license
- PAN card
- Voter’s ID card
- Employee ID
- Bank passbook
- Proof of Age: Birth certificate/Passport/10th class marksheet/Driving License/ Voter ID/ PAN/Bank passbook
- Residence Address Proof: Bank passbook or Bank account statement/ Registered Rent Agreement/ Utility Bill(last 2 months)/Voter ID/Ration Card/LIC Policy Receipt
- Residence Ownership Proof: Sale deed or rental agreement
- Income Proof: Salary slip(last 2 months)/ Bank Statement (last 6 months)/Form 16/IT Returns
- Job Continuity Proof: Authorized Offer Letter From Employer/Increment or Promotion letter
- Bank Statement: Past 6 months’ document
- Property Documents: Sale deed/Transfer of ownership/Katha
- Advance Processing Cheque: A cancelled cheque
- Investment Proof: LIC, mutual funds, property document etc.
- Financial Documents:
- For Salaried Individual: 3 month salary slip/ Form 16 / bank statement
- For Self-Employed Individual: IT returns (last 2 yrs)/Computation of income tax for past 2 years certified by a CA. accountant
- For Self-Employed Non- Professionals:IT returns (last 3 yrs)/Computation of income tax (last 2 yrs)certified by a CA.
Top Home Loan Providers
- State Bank Of India
- Bank Of India
- Punjab National Bank
- Bank of Baroda
- Indian Bank
- United Bank of India
- LIC Housing Finance Ltd
- AIG Home Finance India Ltd
- Dewan Housing Finance Corporation Limited (DHFL)
- Indiabulls Housing Finance Ltd. (IBHFL)
Home Loan Interest Rates in 2019
|Home Loan Provider||Home Loan Interest Rates||Home Loan Processing Fees|
|Axis Bank Home Loan||8.85%||Up to 1% of loan amt|
|Kotak Mahindra Bank Home Loan||8.95%||Max Rs. 10,000|
|HDFC Bank Home Loan||8.90%||Up to 0.5% of loan amt|
|SBI Home Loan||8.75% onwards||Rs. 0 – 10,000|
|ICICI Bank Home Loan||9.10%||0.50% Min Rs. 5,000 - Max Rs. 5,000|
|Muthoot Finance Home Loan||13.50%||Upto 1.5%|
|Bank Of Baroda Home Loan||8.75%||0.50% Min Rs. 7,500 - Max Rs. 20,000|
|Bank of Maharashtra Home Loan||8.75%||0.50%|
|Canara Bank Home Loan||8.75%||0.50% Min Rs. 1,500 - Max Rs. 10,000|
|Central Bank of India Home Loan||8.60%||0.50% Max Rs. 20,000|
|Corporation Bank Home Loan||9.05%||0.50% Min Rs. 1,000 - Max Rs. 50,000|
|Bank of India Home Loan||8.85%||0.25% Min Rs. 1,000 - Max Rs. 20,000|
|PNB Home Loan||8.85%||0.25% Min Rs. 1,000 - Max Rs. 15,000|
|Oriental Bank of Commerce Home Loan||8.75%||0.50% Max Rs. 20,000|
|Union Bank Of India Home Loan||8.80%||0.50% Max Rs. 15,000|
|Indian Bank Home Loan||8.60%||0.23% Max Rs. 20,381|
|IDBI Bank Home Loan||8.65%||0.50% Min Rs. 2,500|
|United Bank of India Home Loan||8.65%||0.59% Min Rs. 1,180 - Max Rs. 11,800|
|Syndicate Bank Home Loan||8.75%||0.13% Min Rs. 500 - Max Rs. 5,000|
|Tata Capital||8.80% onwards||0.2% of loan amt.|
|IndiaBulls||8.80% onwards||Up to 1% of loan amt|
|LIC Housing Finance||8.70% onwards||For up to 1 Cr – Rs 5000 , Above 1 Cr Rs 10,000|
|DHFL||10.00% onwards||Up to 1% of loan amt|
Home Loan Frequently Asked Questions (FAQs)
Property registration is registering the documents related to sale, transfer, lease or any other disposal of an immovable property.
You must verify property Title, Encumbrance Certificate, Sale Deed, Tax Receipts (Latest), Building Plan Approvals, Occupancy Certificate, and ossession Certificate.
The criteria (factors) for eligibility for most lenders are:
- Indian citizen
- Age (Over 21 years of age at the time of loan commencement & Less than 60 years by the end of the loan period)
- Spouse’s income
- Stability and continuity of occupation
- Assets & Liabilities.
- Savings history
In the most of cases, bank usually demands the following documents from a home loan applicant:
- ID proof
- Residence Proof
- Statement of income (salary slips of up to last six months attested by employers)
- Photocopies of Income tax returns or Form 16
Yes. CLSS based PMAY Scheme from ICICI Bank is available to get interest subsidy on your Home Loan.
Yes. You can transfer your existing Home Loan from another bank/NBFC/HFC/ to ICICI bank.
Yes, Most banks and financial institutions allow spouses to jointly apply for home loans and even own the property together.
Fixed Rate of Interest means that the interest rates remain FIXED for the entire duration the loan. This basically means that you do not benefit, even if the rates of interest drop in the market.
This is the rate of interest that fluctuates according to the market lending rate.
Yes, you can pay your loan ahead of schedule, if you want to. However, it must be noted that banks charge a fee for early redemption of loan. This fee can vary between 1-2% of the loan amount being pre-paid.
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