Why Is Home Loan Called A Good Loan?

The Buyt Desk

When one wishes to buy the house of their dreams, they may have to avail of a home loan. Loans are not a good thing but not so in the case of a loan taken for buying a house. Home loans are not bad debts but are considered to be good debt as it makes you an owner of an immovable asset.  but

All Indians dream of buying a home since the day they start earning. It is one’s biggest dream and biggest asset in one’s lifetime. Buying a home needs a lot of money, effort, and time. The house buyer needs to arrange down payment money as the rest can be paid from the home loan. In India, the easiest way to create money for purchasing a home is a home loan which can be availed at a very low rate of interest.

Currently, real estate prices are very high and this makes it difficult for Indians to buy their dream home. Home loans are designed to help people buy homes as the loan amount is 80-90% of the house value. Non-banking financial institutions and public and private banks offer home loans by mortgaging the property till the loan is repaid.

What are the various types of home loans in India?

There are different types of home loans for different purposes in India like loans to buy a flat, individual home, or land, for extending the existing house, or for renovation and repair work at home. Below are the various types of home loans –

• Home Purchase Loan

• Home Construction Loan

• Home Extension Loan

• Home Improvement Loan

• Home Loan Balance Transfer

• Composite Home Loan

• Home Conversion Loans

• NRI Home Loans

What is the eligibility to avail of the Home Loan?

Each lender has its list of eligibility criteria. The main criterion which is considered by all is the borrower’s credit history. A credit score of over 750 is a must to avail loan at the best mortgage rates. There are a few other factors that are considered to determine the eligibility of the borrower which are –

• Age of the borrower

• Employment type

• Minimum salary per year

• Residency status

• Margin requirements

• Collateral security

• Stable occupation

• Assets, stability, and liabilities

What are the Benefits of a Home Loan?

Many Indians avail of home loans to buy, renovate, construct, or repair their homes. Below are a few of the advantages of a home loan that makes a home loan a good debt –

1. Tax Benefits – Income tax deduction is the major benefit of a home loan. On both interest and principal repayment, tax deductions can be claimed. Thus one can save some funds. Here are a few ways under Indian Income Tax law to save money –

• claim up to Rs.1.5 lakh on principal repayments under section 80C

• claim up to Rs. 2 lakh on the repayment of interest under section 24B

• claim up to Rs. 1.5 lakh on special duty expenses under section 24B

2. Lower Interest Rate – Compared to all other loans, home loans have a lower rate of interest. During a cash crunch, loan top-up of existing loans can be made use of. So that you will get more funds at lower interest rates.

3. Long Repayment Tenure – Mortgage loans have long repayment tenures, unlike other loans. Loan tenure can easily be around 30 years. By opting for long tenures, EMI reduces and the budgeting burden reduces.

4. Tax benefits on the second house – If the borrower has brought a loan for the second house, the entire interest on the loan amount can be claimed for deduction under Section 24B of the Income Tax Act.

5. No prepayment charges – When the borrower opts to repay the home loan in a lump sum before the loan tenure, the lender usually charges prepayment penalties on this payment made. But borrowers are not charged prepayment penalties on floating rate home loans. Whenever a borrower has excess funds, they can utilize this fund and make a payment towards the home loan. By doing so, one can lower the burden of loans by either reducing EMI or loan tenure.

6. Balance Transfer Facility – You can change lenders when you are not satisfied with your current lender. You can transfer your home loan to a lender who offers better service and lower interest rates.

7. Dream home becoming reality – Buying a house from savings is not possible for all. But availing home loan one can easily buy their dream home and repay the loan easily in EMI.

8. Capital appreciation – Over time enjoy the gains from the rise in property prices

9. Saves on rent – Currently, rents are very high, especially in metro cities. Paying rent is a dent in your monthly budget. Instead, one can pay EMI and own the property.