The Home Loan Primer

In an earlier time, there were no such things as home loans

. People had to scrimp and save, and maybe towards the end of their working lives, accumulate enough money to buy that long-awaited home of their own. But thats history now. Home loans in India have taken off in a big way. Virtually everyone takes home loan to buy a house of their own.

Things you should know about a home loan

You need a steady source of income: Lenders are generally happy to give home loans to those with a regular source of income, preferably in the form of a salary. But theyve no qualms about giving to self-employed people too. Only that you have to prove that youve been earning enough in the past few years, and that you will keep earning in the years ahead.

Borrow within limits: Ensure that you borrow the right amount. You should have enough left over after paying your equated monthly instalments (EMIs) to lead a comfortable lifestyle. In any event, banks wont give you a huge home loan that youre unable to repay comfortably.

A home loan is safer: Theres another reason why its better to borrow from a bank. Banks generally do some due diligence on the property they check if the titles are clear, there are no legal issues with the property and so on. So when the bank sanctions the home loan , you can be fairly sure that its all pretty above-board.

The tax benefit: Dont forget the income tax benefit on the home loan. You can claim tax benefits on both the principal and the interest. You can claim up to Rs 1.5 lakh as a deduction under Section 24, and principal up to Rs 1 lakh under Section 80C. And if you take a loan jointly with your spouse, each of you can claim deductions separately. The tax savings alone should be enough for you to opt for a home loan!

The prepayment option: Do check for this when you opt for a home loan. Some banks have a prepayment penalty clause, while others dont. Go for one that doesnt penalise you for paying early. Who knows, you might suddenly find yourself with more money than youd bargained for when you took the loan!

Fixed versus Floating Home Loan Interest Rates

For a few years now, banks have been offering fixed and floating home loan rates. A fixed rate is one that remains unchanged for a fixed tenure of the loan. A floating rate, on the other hand, varies according to changes in prevailing interest rates.

Floating rates are lower than fixed ones, and are therefore popular. The disadvantage of course is that floating rates go up and down according to the changing economic scenario. If interest rates shoot upwards, it can adversely affect your EMI calculations.

Home loan interest rates in India have been fluctuating in recent years. But interest rate calculations should not figure high in your considerations. You after all need a roof over your head, regardless of interest rates. So the best time to go in for that home loan is now!

by: nehasharma

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