In India, settling down is synonymous with owning a house. For the average Indian, once you start earning, buying a house becomes one of the major objectives. With the mounting real estate prices today, buying a house is a mammoth task. Home loans have made it significantly easier to purchase your dream home without waiting years to save up the entire amount. A home loan also makes it easier to purchase or make your dream home without using up all your savings in one go.
Banks and NBFCs (Non banking financial companies) offer various types of loans to make your dream of owning a home a reality. Over the years, the demand for home loans in India has increased exponentially. Different people have different expectations from their banks based on their individual needs. For example, banks offer separate home loan rates for women, and agriculturists, and also provide varying loans depending on whether you are purchasing a flat or building it from scratch. The two main types of home loans categorized according to interest rates are fixed rate loans and floating rate loans. When you take a loan on a fixed rate, the interest rate on that loan remains the same throughout the tenure of the home loan. The floating rate varies according to the market conditions. On an average, the fixed rate is 1% - 1.25% higher than the floating rate.
Types of Home Loans:
- Loan for purchase of land: Buying land first rather than waiting to buy an apartment is a flexible option. The buyer can start by purchasing land and constructing a house as and when his/ her finances allow, or simply use the land as an investment. Banks give up to 85% of the cost of the land as loans.
- Loan for a home purchase: The most popular and widely demanded home loan is the loan for a new or a pre-owned home. Every bank across India and the world offer various home purchase loans at varying rates of interest, depending on the loan tenure. The interest rate can be either floating or fixed, ranging from 9.85% to 11.25%. However, banks do not cover 100% of the cost of your home, but will grant loans up to 85% of the home purchase cost.
- Loan for construction of a house: This type of loan is for people who wish to construct a house from scratch according to their own design, rather than buying a pre-constructed house. This loan has an entirely differently application procedure, as it takes into account the cost of the land as well. In order to include the cost of the land as well, the most important clause when applying for a home construction loan states that the land must have been purchased within a year of applying for the loan.
- House expansion/ extension loans: Around the festive season, many people look to do more than just renovating the house. A new balcony or an additional extended bedroom is what they aim for. In such cases, banks offer loans for home extension, which includes the alteration of the current design structure and construction of new rooms.
- Home conversion loans: Imagine you have already availed a home loan and have already purchased a house, and then realize you have found a better house. In such a case you can opt for home conversion loans. The bank transfers the current loan to the new house and you are not required to pay the previous home loan. Although this segment of loan is very convenient, it is also very expensive.
- Loans for home improvement: As we talked about earlier, renovation and repair work like painting, construction of an overhead tank, electrical renovation, and other internal and external repairs are undertaken to create a better home experience. Certain banks offer special home improvement loans for such renovations and tasks.
- Balance Transfer Home Loans: Often, it so happens that a person borrows a loan from one bank, pays off a part of the loan, and then realizes there is a lower rate of interest available at a different bank. At this point the borrower can take the decision to transfer their loan to a new bank, by opting for a balance transfer. Balance transfer home loans help to repay the same loan at a lower rate of interest with a different bank. However, it is recommended that you go for a balance transfer towards the beginning of your tenure. Towards the end, you might not be able to save as much as you were hoping to, not to mention the additional fee levied by the borrower might actually add to your costs rather than help you save. To know whether you should opt for a balance transfer or not, contact our Chqbook experts today.
- NRI Home Loans: This type of loan is designed specifically for non- resident Indians living abroad. It caters to NRIs looking to buy a residential property in India. The procedures and formalities for an NRI home loan application are different from the other types of loans. However applications for this type of loan are rare, and most banks and vendors offer it as a product of their housing loan portfolio.
- Stamp Duty Loans: Stamp duty loans are not very well known, and not many people apply for them. They are borrowed to cover the stamp duty charges during the property purchase procedure.
After 1st July 2017, a GST rate of 18% is applicable for all financial services. The presence of loans has made it very easy to buy almost anything you dream of without burning a hole through your pocket. However with more and more banks offering various types of loans, it becomes more important for you to read the fine print and be aware of all the conditions surrounding the loan you are applying for. It is also important for you to identify and understand your requirement and apply for the right type of loan. Taking a loan, especially a home loan, is a long term commitment, and you need to be aware of the loan agreement in order to plan your finances better.