What is Home Loan

The high cost of real estate in India means that to be a homeowner, you usually avail a loan. What is a home loan? It is a loan you take for your housing needs, such as to buy a flat or purchase land. You can apply for a home loan to purchase a personal or commercial property.

When taking the home loan, you mortgage your property to your lender. Each month, you repay a portion of the home loan, with interest, through EMIs. Both the interest and principal components qualify for a tax deduction. This is basically how a home loan process works.

Below are some common types of home loans.

Types of Home Loans Available in India

Before you take a home loan, find out what are the home loans available to you.

• Home Purchase Loan: Taken to buy a new or second-hand home
• Home Construction Loan: Taken by an owner of land to build a home
• Land Purchase Loan: Taken to buy a plot of land
• House Expansion/ Extension Loan: Taken to enhance the current structure
• Home Improvement Loan: Taken to renovate, remodel, or repair a home
• Home Conversion Loan: Taken to finance a new home rather than the old one, which the home loan was initially taken for
• Bridge Loan: Taken for a short term to buy a home while waiting to sell the old one
• Home Loan Balance Transfer: Used to switch a home loan from one lender to another
• Top-up loan: Taken to get an additional amount above the outstanding home loan amount to meet a variety of needs
• NRI Home Loans: Tailored for non-resident Indians, who desire to purchase a property in India
• Joint Home Loan: Taken by two or more persons

Which is the Best Home Loan?

The ideal home loan for you depends on your needs. Since the different types of home loans are customised for different purposes, you can expect the best terms and the easiest approval process if you apply for the correct home loan. Also remember that the loan’s features depend on the home loan rules and regulations set by the RBI and the lender. An example is limiting the loan-to-value ratio to 90%. These terms also include the current home loan interest rate and tenor options. Additionally, you can use a home loan eligibility calculator to know your eligibility beforehand. To get the best home loan, look for the right type of loan, check the features offered, and approach a top lender.

Lastly, keep in mind that there are mainly 2 types of home loans, when divided as per interest rate:

• Fixed-rate Home Loan: Allows you to lock-in at a given interest rate
• Floating-rate Home Loan: Allows you to benefit when the interest rate dips. However, the interest may also increase due to market conditions.

With a better understanding of what is a home loan, plan your journey towards becoming a homeowner smartly and meet your housing needs today.