Purchasing or building a dream home is one of the biggest investments that involve extensive financial and emotional decision-making. While buying a residential property, most buyers extend their budget and tend to opt for a suitable home loan, which is basically a long-term commitment of paying regular equated monthly installments (EMIs). There are various secured home loans offered by banks, non-banking financial companies (NBFCs), and other financial institutions which help buyers cover the expenses for ready-to-move-in houses, under-construction property, repairing, renovation, and others.
While the tenure of repayment of the housing loan can be 10 to 30 years, the interest rates levied on the loans vary from lender to lender. Hence, borrowers need to be careful and informed about the every step of availing and repaying the loan, and the perfect lender to avail the loan from.
As home loans are one of the most important financial tools to help an individual buy his/her dream home, let’s take a peek into the key benefits of housing loans, and why buyers should avail them:
High loan value
Depending on certain factors like location, borrower’s credibility for repayment, etc., financial institutions might offer to finance up to 70 to 90 per cent of the market value of the property; with rest of the amount being paid by the buyer as repayment. Hence, the value of the loan that a borrower can avail as a home loan is very high and borrowers need to just carefully calculate the loan amount they can obtain and the down payment they need to pay.
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A borrower can utilize the loan amount for multiple purposes like buying a piece of land, constructing a new house on an already owned land, purchasing an under-construction property, renovation, etc.
Flexible period of repayment
In home loans, the borrowers get to select the repayment tenure of up to 30 years and with a longer tenure of repayment, borrowers get the opportunity to pay lower and pocket-friendly EMIs.
Options for interest types
While availing a housing loan, borrowers get to choose the type of interest rates they can avail – fixed or floating interest rates. Choosing a fixed interest rate translates to having to pay the same EMI throughout the entire loan tenure, while the floating interest rates means that the EMIs will vary with the applicable interest rates in the market.
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There are multiple tax benefits associated with the home loans like a borrower can get a tax benefit of up to Rs 1.5 lakh on the principle repayment, under section 80C of the Income Tax Act. Also, a borrower can claim up to Rs 2 lakh as tax deductions on the Home Loan interest repayment component.
While the home loans can be one of the most beneficial financial support an individual can avail from the financial institutions, paying the EMIs on time is the best way to reduce the burden of repayment easily.
Here are some tips to manage the EMIs of a home loan:
Maximum down payment
Borrowers should always choose to pay the maximum down payment rather than opting to avail the maximum loan amount they are eligible for. Lower principal amount will result in payment of lower interest rates; thereby significantly reducing the burden on EMIs.
Choosing the right lender
As home loan interest rates vary from lender to lender, it is wise for the borrowers to do a proper market research to avail the best offer. Borrowers have to carefully choose which lenders are offering the lowest interest rates, with which they can clear off their dues at the earliest. Also, while selecting the right lender, borrowers should not only consider the interest rates but other fees and charges like processing fees, late payment charges, and other hidden fees.
Payment of higher EMIs
One easiest way to repay the loan amount in less time is by increasing the amount of EMIs. In home loans borrowers get the option to talk to the lender and increase the EMI amount and thereby reduce the loan tenure.
Choosing the loan tenure
To pay off the debt sooner, borrowers should always consider choosing a shorter home loan tenure and payment of higher EMIs. Also with a shorter loan tenure, the borrower will have to pay lower amount of interest.
(By Mahesh Shukla, Founder & CEO, PayMe)