Close

	Receiver's Name:		*
	Receiver's Email:		*
	Your Name:		*
	Your Email:
	Your Message:

Basics of Home Loans in India

• What is a home loan?
  • Amount of home loan
  • Home loan interest rates
  • Salient features of home loans
  • Down payment
• Repayment of home loan
• Fees associated with home loans
  • Before Disbursal
    • Processing Fee
    • Legal and Technical Charge
    • Stamp Duty
• Post Disbursal
  • Prepayment and Foreclosure Charges
  • Duplicate Statement Charges
  • Delayed Payment and Cheque Bounce Charges
• Insuring your home loan
  • Home Loan Insurance
  • Home Insurance
• Tax benefits of home loans in India
  • Interest paid on home loan
  • Principal repayment of home loan
  • Some Key points on taxation

What is a Home Loan?

A home loan is a  loan taken for buying or constructing a home or to make improvements to a residential property. You can get a loan from from banks and registered housing finance companies.

Your home loan is secured against the property that you buy. This means that in case you are unable to repay the loan, the lending bank will have the right to take possession of your home.

You need to be familiar with two terms relating to home loans:

        1.  Principal amount:

        This is the total loan amount that the lender gives you

        2.  Interest rate:

        This is the cost of the loan that you pay to the lender

The amount of the loan, i.e. the principal, that you can avail of is decided by the lender based on:

• Your income
• Your  loan repayment capacity
• The house (property) you wish to purchase

As a borrower, you can choose the type of interest rate that you will pay. You can either pay:

1. Fixed rate: Where the interest rate remains fixed during the life of the loan
2. Floating rate: Where the interest rate floats or changes depending upon market interest rates

Additionally, you can also chose the loan repayment period that you are comfortable with.

(Please refer to Selecting The Right Home Loan Lender  and Home Loan Process for more details)

Some salient features of home loans are:

• Loans are available for salaried, self employed and Non Resident Indians (NRIs)
• Loans are available for builder flats, under construction properties, and residential plot with construction due to start
• Flexible repayment options, ranging from 12 months – 300 months (1 year – 25 years)
• Repayment with easy Equated Monthly Installments (EMI)
• Loan transfer facility in case you want to change your lender
• Pre-payment facility in case you want to pay back more of your loan

(Please refer to Selecting The Right Home Loan Lender and Home Loan Process for more details)

Do I need to pay any cash upfront, or will the lender loan the entire amount?

Yes, you will need to put in a down payment of upto 15%-20% of the value of the property upfront (figure can vary by lender). Home loan lenders usually do not finance the total cost of the property.

Repayment of home loan

You can choose a repayment period from 12 months - 300 months (1 year - 25 years) for your home loan in India. During this period you will be making a  fixed monthly payment to the lender. This payment is called EMI – Equated Monthly Installment. Please note that usually post-dated cheques of the home loan EMI amount are taken upfront, at the time of the loan grant.

This EMI is a fixed amount that you pay on a monthly basis and stays constant during the life of the loan (unless you change the tenure, i.e. length of the loan). However, the home loan interest and principal component of the EMI change on a monthly basis.

Fees associated with home loans

There are charges and fees to be paid both before the loan is disbursed to you, as well as during the life of the home loan.

Before the disbursal:

a.  Processing Fee

Most lenders would take a cheque of the home loan processing fee along with the application form. This fee is mostly non-refundable. So be prepared to pay up to Rs 5,000 as processing fee at the beginning of the process.

b.  Legal and Technical Charge

Many lenders recover the costs that they incur for legal and technical verification of the property. These are known as legal and technical charges.

c.  Stamp Duty

You will have to pay the stamp duty to the Government on your home purchase transaction. Many banks also recover the stamp duty paid on the registration of the loan agreement.

Post-disbursal:

a.  Prepayment and Foreclosure Charges

Prepayment Charge is the penalty paid by the borrower for making extra payments beyond the repayment schedule. Usually, this is waived off by most lenders.
Foreclosure Charges are applicable when you repay the entire amount of the home loan before the actual tenure. These days banks levy this charge only when you are doing a home loan balance transfer to another home loan lender and not when foreclosing with your own funds.

b.  Duplicate Statement Charges

Every year, the lender sends you a statement detailing the amount of money that you have paid during the year towards your home loan. This amount is broken into interest paid and principal repayments. This is done for your annual tax  filing purposes. If you lose this statement, the lender might charge you to issue a duplicate statement.

c.  Delayed Payment and Cheque Bounce charges

Delayed Payment Charges also known as the late payment charges are levied if you make the payment after the due date. You might also be subject to cheque bounce charges in case one of your post-dated cheque bounces because of lack of funds.

Home loan insurance

There are two types of home insurance that you must get.

Home Loan Insurance

When you take a home loan, you owe the lender money. If you are not able to repay then the lender will take away your home. So, in a situation where you lose your life and no surviving member of the family can repay the loan, your home may be taken away by the lender. You can protect yourself and your family by buying a Home Loan Insurance, also know as Loan Cover Term Insurance.

If something happens to you, you can be rest assured that with this insurance your home loan repayment will not be at risk and your home will not be taken away.

For example, say you took a home loan of Rs 10 lakh. In the next two years, you have paid back Rs 2 lakh of the principal amount, and Rs 8 lakh remains to paid. However, at this point you meet with an accident, and no one can meet the EMI payments due to the lender. In this scenario, if you have the housing loan insurance, the insurer will repay the remaining amount of Rs 8 lakh on your behalf. If you did not have this insurance, your home might be repossessed and your survivors might not have a home to live in.

Home Insurance

Your home is your most valuable asset and the result of your life's hard work and savings. You must protect it against natural disasters such as floods or earthquakes, or against fire. Therefore, it is important to get home insurance for building and contents so that you can at least recover the replacement cost of your home or your belonging in the event that something happens to your house.

Tax benefits of home loans in India

You can avail tax benefits for both interest as well as the principal component of your home loan.

Interest paid on the home loan

As per Section 24 of the Income Tax Act, 1961 a deduction up to Rs. 150,000 towards the total interest payable on the home loan towards purchase / construction of house property can be claimed. The interest payable for the pre-acquisition or pre-construction period would be deductible in five equal annual installments starting from the year in which the house has been acquired or constructed. This deduction is allowed only for self-occupied property.

The interest towards home loan taken for construction, repairs, renewal or reconstruction of existing house property is also eligible for deduction under Section 24.

Principal repayment of the home loan

As per Section 80C  of the Income Tax Act, 1961 the principal repayment up to Rs. 100,000 on your home loan for purchase or construction of a residential house property will be allowed as a deduction from the gross total income.

Some key points on taxation:

• Tax benefit is not available if you do not have possession of the house.
• Two or more people who have taken a joint home loan in India can both take advantage of the tax benefit in the ratio of the EMI payment that they are making.
• You can take advantage of both the home loan tax benefits and HRA benefit if you are living in a rented accommodation and not in your own house.
• This tax benefit is not available for loan against existing property or loan taken to purchase land.