Home loans, apart from being a great way to finance your home ownership dreams, also double up as tax-saving instruments. This article covers the different types of home loans and the benefits of each.
This kind of home loan is one of the most common kinds of financing that borrowers look for. It is designed to fund the purchase of an existing house property, whether the property is newly built or is being resold by the current owner. In these loans, the lender typically finances around 80% to 90% of the cost of the property, while the rest will have to be paid as a down payment by you. Home purchase loans can be availed for independent houses, apartments, duplex houses and single-family homes, among other kinds.
If you already own a plot of land to build a home on, you may need external financing to fund the construction cost. As the name indicates, a home construction loan is the right financial product for this purpose. Here, banks, NBFCs and other lending institutions offer to fund for building a home in an existing plot of land after assessing the estimated construction cost. This kind of loan is often disbursed in instalments depending on the construction progress.
What if you want to build a home but do not own a residential plot of land to construct the property on? In that case, the type of home loan you need is a residential plot loan. Typically, the interest rates on these loans are higher than the interest rates on general housing loans. That said, you may often have to avail of a residential plot loan as well as a home construction loan to buy the plot and build your house. This means you can negotiate better rates.
You may already have a house of your own and live in it. However, over time, you will find that your family grows, and you may need more space to live in. This effectively means it may be time to extend your home or add a new floor to the building. For these requirements, you’ll find that a home extension loan is the best bet. A subcategory in this type of loan is a home renovation or home improvement loan, which can be used to renovate and improve your current house property.
Do you already have a home loan that you are repaying but aren’t entirely satisfied with the repayment terms and conditions? In that case, if you find a lender who offers better repayment terms, you could avail of a home loan balance transfer to switch to a different lender. This can be highly beneficial because it could reduce the overall burden of home loan interest or make it easier for you to repay the loan sooner (or later) at your convenience.
This sums up the details of the most common types of home loans in India today. Depending on the kind of property you wish to own and the nature of the transaction (whether a purchase, construction, remodel, renovation or expansion), you can choose the type of housing finance that aligns best with your requirements.
If you’re wondering whether you should rent or buy a house, you could use this ‘Rent vs Buy’ calculator to help you make a decision.
One of the most common types of home loans in India is a loan for purchasing a new home or a pre-owned home. This type of housing finance is typically available to borrowers who wish to buy a ready-to-move-in home, which is why it is highly popular. The next most common type of housing loan is a loan to construct a new house property.
It is extremely easy to get a housing loan for an existing house, whether it is new or a resale property. This is because it is easier to verify and transfer the registration from the seller to the buyer. The lending bank can easily evaluate the cost of purchase based on existing property value guidelines. The house is question also acts as collateral for the loan in itself.
From the lender’s perspective, a home loan lent to a borrower with a poor credit profile may be highly risky. For borrowers, on the other hand, home loans with flexible interest rates could be risky, because if the benchmark rates rise, the home loan interest rates will also increase correspondingly.
