Buying a home of your own is an apex financial achievement according to societal standards. And why not? It involves investing a huge amount of money in a fixed asset. This financial burden can be eased off by applying for a home loan at a bank or other financial institution.
Selecting from the variety of home loan offers available in the market is a difficult task. The EMIs rate of interest processing feemany other factors are to be considered while choosing the best option available. Navi (a non-banking financial company) is one such platform where the benefits of an instant home loan can be availed. But before diving into the options available, are you sure you know everything about home loans? Let’s check your understanding of this topic.
Table of Contents
Eligibility while applying for a joint home loan:
One of the main reasons to apply for a joint home loan is to be able to avail of the benefit of a higher amount being sanctioned for a loan.
However, though banks offer joint loans to married couples, brothers, parents, and children, it does not offer joint home loans to unmarried couples, sisters, and friends. This is a criterion that needs to be kept in mind while applying for a joint loan.
You own the home; you borrow the loan:
Imagine a situation where you and your spouse have decided to buy a home. You have the share of funds you have decided to contribute, but your spouse needs to apply for a home loan. You do not need the loan.
But if you two are the co-owners of the property and apply for a joint home loan, the bank mandatorily requires the co-owners to be co-applicants and borrow the loan.
You may not need the loan, but the bank requires the co-owners to be co-borrowers. If the property is registered in the name of more than one person, the bank mandates all the co-owners to be co-borrowers.
When a woman applies for a housing loan:
The banks usually offer a slightly lower rate of interest for woman loan borrowers. If you are a woman, you may avail the benefits of this policy. However, even if you are not a woman and wish to gain these benefits at the rate of interest, you may apply for a loan in the name of your wife or mother. Please note that in this case, the woman needs to be the primary applicant for the loan.
These policies are devised and implemented to promote gender equality and empower women.
While applying for a home loan, the applicants can avail of the benefits of tax deductions under two sections of the Income Tax Act. These are-
- Section 80C for the principal amount (up to Rs.1.5 lakhs)
- Section 24(b) for the interest amount (up to Rs. 2 lakhs)
On applying for a joint loan, both applicants can apply for tax deductions.
The total deductions sum up to Rs. 3 lakhs for the principal amount and Rs. 4 lakhs for the interest amount, which is to be repaid.
Tax benefits may also be claimed on the processing fees as they are treated as interest. However, the tax benefits on the principal amount are reversed if you sell the property in less than five years from the date of purchase or the date of taking the home loan.
Tax deductions on the interest amount can be availed of even if you have missed a few EMIs during the year. The section clearly mentions ‘interest paid or payable.’ This is not the case with the tax deduction on the principal amount, which can be availed only if ‘paid.’
Amount to be funded by the loan:
Even the best home loan lenders provide a loan for only 80-90% of the price of the property. The remaining 10-20% is to be borne by the applicant. Make sure you have some savings before you decide to buy a home. No bank or financial institution will fund 100% of the investment needed to buy the house.
Note- Fixed Deposits are a smart way to save. They are one of the safest investment options.
Fixed rate of interest, Is there a catch?
There are two types of housing loans available, one with a fixed rate of interest and with a floating rate of interest. However, a fixed rate of interest may be a misnomer. Unlike the assumption made from its name, a fixed rate of interest may be fixed only for some of the initial years and not for the entire tenure of the loan.
Note- Kindly go through the loan agreement keenly to check for any reset clause on the interest rate of the loan.
Order of repayment:
When you apply for a home loan and begin to repay it to the financier, you first pay the interest amount entirely, only then the principal amount. Thus, in the initial years, the interest rate is high. This happens even in the case of best home loans.
Note– It is advised to make prepayments on home loans in the initial years when the interest rate is high.
In order to check the principal amount and interest on your home loan, you may use an EMI calculator to find out.
Applying for a home loan is not an easy task given the variety of options available and the nitty-gritty involved. It involves a lot of legal and financial aspects, which may be tough to digest. At first, it may seem that you have understood the mechanism, only to realize later that you have barely scratched the surface. Nevertheless, little research, knowledge, and help from a trustworthy lender will simplify the process.
While applying for a home loan, Navi could be a platform to rely upon as they have a record of quick home loan approvals, great guidance, and trustworthy customer service. They provide detailed and simple-to-understand information just with a few clicks.