Housing Loan For Indian Property Market

Published on: Jun 21, 2015 @ 14:09

Buying  a  house  is  one  of  the  greatest  dreams  of  a  person  of  today’s  world  as  it   gives a sense  of  security and a  sentimental  support. It  requires  huge  finances  but  you  can  still make the  dream  possible  with  the help of  a housing loan. Without  a  housing loan,  most of us  would not  be  able  to  fulfill  the  dream  of   acquiring our own house.

Housing loan  offers  you  a  chance  to  buy  an  asset  and  simultaneously  offers  a  tax  benefit. Once  you have  got the  home  loan,  you  will  be  paying  a  periodical  interest  as  well  as  the principal  amount  to  the lender.  The Indian  Income  Tax  law  provides  you  benefits  in  both instances  and  you  will  be  eligible  to  claim both  your principal  and  interest  amount,  which you  repay  towards  your  housing  loan  during  the  year.  You can  take  the housing  loan  for various  purposes:

  • to  buy  a  new  house / flat,
  • to  improve / extend  your  home,
  • to  purchase  a  resale  property,
  • to  buy  a  plot  of  land,
  • to  build  a  house  on  owned  land  or
  • to  pay  off  an  existing  home  loan  from  another  financial  institution.

Home  loan  lenders  governed  by  RBI,  are  permitted  to  provide  up  to  80  per  cent  of  the value  of  the property as  the  loan  amount,  subject  to  your  income. However,  some  HFCs regulated  by  National  Housing Bank,  also take  into  consideration  the  stamp  duty  and registration  cost  of  the  property. You  can  also  take  a home  loan with  a  co-applicant  as  his / her  income  will  also  be  considered  which  will  help  to  enhance  your home  loan eligibility.

The  housing loan  eligibility  is  calculated  on  the  basis  of  your  income,  the  number  of working  years  left  and previous  track  record  of  your  repayments  of  your  loans  and  credit card  dues.  A  50 years  old  earning  Rs 1 lakh  a  month  could  be  eligible  for  a  lesser  home loan  amount  than  a  30  years  old earning  the  same amount. The  latter  has  20  more  years  to repay  the  loan.  As  housing  loan  is  20-25  year long  contract,  lenders  need to be  sure  of  your repayment  capability. They do  not  consider  some  of  your salary  slips  heads  for  calculating your  net  monthly  income.  They  only consider the  income  heads  which  can be  used  to  repay your  loan. For example,  your  LTA  and  medical  allowances  are deducted  from  the  monthly net salary  you  receive  which  you are  expected  to  spend  the  amount  received under  these  heads for  the specific  activities  they  are  being provided  for.

The  housing loan  eligibility  depends  on  the  credit  worthiness  of  the  individual. Banks  check your  credit  score with  a  credit  bureau (CIBIL). It  provides  a  credit  score  on  your  previous credit  card  usage,  how  you maintained  your  bank  accounts,  any  check  bounces,  existing loans,  loan  repayments,  how  many  times  you have  applied  for  a  loan  or  credit  card  etc.  All the home  loan  lenders  approach  CIBIL  for  this  score whenever you  apply  for  a  housing  loan. CIBIL  rating,  net  salary  excluding  some  variable  heads  and  existing loans  and EMIs  being paid  towards  existing  loans  are  the  important  components  which  decides  your  home    loan eligibility.

The  type  of  interest  rate  you  choose  will  have  an  impact  on  the  monthly  EMIs  you  pay. One  of  the important  factors  to  consider  before  seeking  a  home  loan  is  the  difference between  fixed  and  floating  home loan  rates. If  you  opt  for  a  fixed  rate,  the  EMIs  don’t  vary over  the  loan  tenure. It  is  beneficial  when  the interest  rates  are  expected  to  rise  in  the future. In  case  of  a  floating  rate, the  interest  rate  is  determined based  on  the  prevailing  base rates. It  is  beneficial  when  interest  rates  are  expected  to  fall  in  the  future.

The EMI  is  calculated  on  the  basis  of  the  amount  of  the  home  loan,  home  loan  interest rate and  loan tenure. The  monthly  EMI  is  inversely  proportional  to  loan  tenure,  i.e.  the  longer the tenure,  the  lower  the EMI,  and the  shorter  the  tenure, the  higher  the EMI. Similarly,  the  total interest  paid  is  directly  proportional to  the  loan tenure. The  higher  the  tenure, the  higher  the total  interest  paid, and  vice-versa.

Read  the  home  loan  agreement  documents  carefully  before  you  sign  them. Check  the documents  to  ensure that  the  terms  and  the  different  charges  applicable  such  as  processing fees, late  payment  fees  etc. are  the same  as  what  you  have  negotiated  and  agreed  upon.

The Reserve Bank Of India  has  prohibited  banks  from  levying  any  foreclosure  charges  if  you pay  off  the  loan prior  to  its  tenure.


Ajay Verma

Ajay Verma, founder and writer of TheHousingWorld, a real estate and mortgage news website. He has over fifteen years of rich experience in the above mentioned industries.

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