With property prices always on an upsurge, affording a home is only possible when banks or other lending institutions give the facility of taking home loans for the property. With so many different components of the cost of a home, a house costs you more than you imagine it to be. The basic cost of the house, stamp duty and registration, VAT and other legal charges are all added up to make the total cost of the home to the home buyer.
Banks have certain criteria set for determining the loan they can give to any individual, business enterprise or any industry. Not more than 80% of the total amount is given out as a loan. The rest of the amount has to be paid by the individual in the form of down payment and stamp duty, registration and VAT amount.
Here are some things that you should know about home loans:
A home can be bought at two rates of interest i.e. fixed and floating. In the former, a fixed rate is paid for the entire tenure and for floating, the interest rates change according to market conditions.
Home loans can be taken for buying any type of property -be it flats in an apartment, secondary home or a plot. Not everybody knows that loans can also be taken for renovating and maintaining of old home.
Taking a home loan also helps in availing tax deductions. Under various Sections of the Income Tax Act, a borrower can avail of deductions on the principal as well as the interest component of the home loan. In India, a borrower can claim deductions under Section 80C of the I-T Act for the repayment of the principal component. The limits are set at Rs 1.5 lakh. Section 24 of the Act, on the other hand, allows borrowers to claim deductions on repayment of the interest component. The deduction limit here is set at Rs 2 lakh.
Banks do not permit friends or relatives who are not blood relatives to take a property loan jointly. The owner of the property should always be the main applicant. The property may be in the name of any one of the two.
You can always prepay your home loan to shed the financial burden before time. There is no penalty applicable on the pre-payment of the loan after the Reserve Bank of India directed banks to waive charges for loans taken on floating rate of interest in the year 2013. But a penalty is still charged on transfer from one bank to another if you have taken a home loan at a fixed rate of interest.
If you think your loan rate is more, you can get that loan transferred to the bank that offers you loan on a lower rate of interest. It is done to lower down the total payment you need to repay the loan. Home loans can be transferred from one bank to another, but there are some charges applicable on transferring the loan from one bank to another.
One important thing to know is that home loans will not cover the money that you have to pay as stamp duty and registration charges. This amount is termed as buyer’s contribution and he has to pay that from his own pocket.
Banks will consider your age and income to judge your credit eligibility. A whole set of documents has to be submitted to the bank for ascertaining the loan eligibility. Young people with good salary package can avail the home loan easily as compared to someone older.
If you default, banks charge a late-payment fee upon each event. If somebody is unable to repay the loan, the bank will have the right to possess the property and auction it to recover losses.