- Which Home Loan should I Opt for among its various types?
- Know about various home loans such as Home Purchase Loan, Home Construction Loan, Renovation Loan, etc.
Owning a home has been always the number one priority of a common individual living in our country. But as you have an idea about the soaring prices of real estate, it is not possible for most to purchase the home or land. To solve this problem, there are several Banks and Housing Finance Companies (HFCs) that provide a Home Loan to those individuals who don’t have enough funds to own the desired home. A borrower will need to repay the loan amount within a fixed tenure chosen by him or her.
But, there is not only one type of home loan that is popular among individuals. In fact, there are so many. Because apart from purchasing the house, there are some people who need funds so that they can construct a house on the purchased land. Some people need funds so that they can renovate or repair their beloved homes. Banks and HFCs provide various types of home loans for different purposes such as Home Purchase Loan, Home Construction Loan, Home Renovation Loan, Home Loan for Repair, Home Loan Balance Transfer, etc.
In this article, we would be giving you a detailed outlook on each of the home loan types so that you can make a better decision while choosing the right kind of loan for you. Keep reading!
Let’s Talk about Various Types of Home Loans in Detail
As we told how banks and Housing Finance Companies provide a wide range of home loans for different needs of the individuals. You can look at all of them below.
Home Purchase Loan
When we talk about one of the most common loans taken by individuals, Home Purchase Loan would be the first among them. Banks, Financial Institutions and HFCs provide the required sum so that an individual can purchase the desired home. Lenders also charge an interest rate on the loan amount they provide to individuals. You can choose between Floating and Fixed Rate of interest according to your convenience. The maximum repayment period is fixed at 30 years for an individual who is opting for a home purchase loan. When you opt for a Home Purchase Loan, you also avail tax benefits on both principal and interest amount every financial year.
Both Salaried and Self-employed Individuals can opt for a home purchase loan with which they can purchase their dream home in a hassle-free manner. The loan amount varies from one lender to another and also depends on the overall value of the property, age, employment type, credit score of an individual. A lender can give you a maximum of 90% of the property value as the loan amount, which can be as minimum as 75% of the property value. This is known as the LTV (Loan-to-value) ratio. A Higher LTV amount will reduce the down payment amount that you need to pay upfront to the seller of the property. You can look at the below table to know more about LTV.
|Loan Amount||Loan-to-value Ratio|
|Upto INR 30 lakh||90% of the Property Value|
|INR 30 lakh to INR 75 lakh||80% of the Property Value|
|Above 75 lakh||75% of the Property Value|
Note – The LTV ratio shown here is followed by many lenders. But there can be a few who will follow different LTV ratio criteria.
So, if you are looking to buy a home loan to purchase the home you always wanted to, this would be the right choice for you. Also, it is advised to compare the different home loan lenders before finalizing the suitable home loan for you.
Home Construction Loan
An individual has a vacant plot and he wants to construct his dream house on the same. But construction of the house will take a lot of funds, so he wants to have a loan for it. For this particular purpose, lenders provide a Home Construction Loan. With the help of this loan, an individual can get the required funds (75% to 90% of the property cost) to construct a home on the vacant land. The loan amount will be disbursed in installments by the lender. So, you will not get the full loan amount in one installment.
When a lender provides a home construction loan, a borrower has to start the construction within a period set by the lender. This period changes from one lender. Like if you are opting for a State Bank of India (SBI) Home Construction Loan then you would have to start the construction of the house within 5 years of the date on which the loan was taken. Also, unlike Home Purchase Loans, the tenure of Home Construction Loan generally tends to be shorter. As shorter tenures can have a higher EMI amount, you should choose the loan amount according to your repayment capacity.
Unlike Home Purchase Loans, you can get tax benefits only on the interest amount paid every financial year for the Home Construction Loan. Apart from this, you will get tax benefits until your construction is complete. For example, if your construction has been going on for 5 years then you will get tax benefits on the interest paid for each of these 5 years.
If you want to know about the details of Home Construction Loans offered by some of the top lenders, you can check the below table.
|Lender||Rate of Interest||Loan Amount|
|SBI Realty Home Loan (For Home Construction)||8.05%-8.55%||Upto 90% of the Property Cost|
|HDFC Limited Home Construction Loan||8.60% - 9.60%||Customized (Depending on the Property Value)|
|LIC HFL Home Construction Loan||8.00% - 9.25%||Upto 90% of the Property Cost|
|ICICI Bank||8.10% - 8.95%||75% to 90% of the Property Cost|
Home Renovation Loan
Imagine an individual who already has an existing home and wants to improve some parts in it doing a renovation. For this purpose, an individual needs funds for it, and there are so many lenders that provide Home Renovation Loan, also known as Home Improvement Loan, at an affordable rate of interest. The maximum loan amount will depend on your overall estimate of the home renovation and tenure will also be shorter than a regular home loan.
With the help of a Home Renovation Loan, you can give your home a much-needed makeover in various ways such as Tilting, Flooring of any kind, internal or external plaster, painting, etc. The best thing about this home renovation loan is that it can be availed by both new customers and the customers who already have home loans from the lender. The interest rates on a home renovation loan generally are sane as a regular home loan and change from one lender to another. So, you should check all your requirements before choosing the final lender.
Home Loan Balance Transfer
A home loan balance transfer is a popular option amongst borrowers wanting to reduce interest payments on their existing loan. You must be thinking about what this home loan type is? Well, through this facility, a borrower can transfer his or her existing home loan to a different lender at a rate of interest which is lower than the existing one. By transferring the current outstanding principal amount to a different lender, a borrower can save on the EMI amount and also on the interest amount. To avail of this facility, a borrower has to pay a certain fee that changes from one lender to another and depends on the principal outstanding amount.
Opting for a Balance Transfer Facility in the initial years of your loan can help you in reducing your interest payments substantially over time. The reason behind this is the higher portion of the interest amount as compared to the principal amount in the initial years. The most important thing that you need to remember is you need to have a good credit score (CIBIL Score) to avail Home Loan Balance Transfer. Other than this, the lender will also check your property for authentication purposes.
Let’s understand this through an example. Suppose you have an existing home loan of INR 35 lakh for 20 years at an interest rate of 8.75% per annum. After paying the EMIs on time for 5 years, the person wants to transfer his outstanding principal amount to a different lender who is offering the home loan interest rates of 7.25% per annum. So, this can be done by the Balance Transfer Home Loan. Let’s see how much money you can save this in the table below. Check it out!
|Existing Loan Amount||INR 35 lakh|
|Interest Rate||8.75% per annum|
|EMI at the current interest rate of 8.75% per annum||INR 30,930|
|Estimated Interest Outgo at 8.75% per annum||INR 39,23,170|
|Interest Paid till now ( 5 Years )||INR 14,50,487|
|Outstanding Balance at the end of 5 years||INR 30,94,693|
|EMI at the new interest rate of 7.25% per annum||INR 28,250|
|Interest Outgo at the new interest rate of 7.25% per annum||INR 19,90,362|
|Interest Paid till now + Interest Payable for the remaining 15 years||INR 34,40,949|
|Estimated EMI Saving||INR 2,680 (30,930-28,250)|
|Estimated Interest Savings||INR 4,82,221(39,23,170-34,40,949)|
So, you can clearly see that opting for a Balance Transfer Facility could be highly beneficial for you. From the above table, you can see how the facility is helping you in lowering the EMI amount by INR 2,680 from before. Other than this, you can also save on interest payments by around INR 4.80 lakh with this transfer.
One of the home loan types is the Plot Loan. You must be wondering about the purpose of this home loan type. Well, as it is evident from the name, a plot loan can be used by an individual who wants to purchase a plot or a piece of land for residential usage but doesn’t have sufficient funds for this purpose. This is a suitable option for those individuals who don’t want to purchase an already built house and instead, buy a land and construct the house according to their preferences.
One of the major features of the Plot Loan is the affordable interest rates that start from as low as 7.95% per annum. Women borrowers can get a lower rate of interest than other borrowers. You need to remember that interest rates tend to vary from one individual to another. The loan amount that you can get with a Plot Loan is a maximum of 80% of the overall value of the plot that you want to buy.
Suppose the overall plot value is INR 15 lakh then the maximum loan amount that you can get is INR 12 lakh. Other than this, the maximum loan amount also depends on other factors such as age, employment type, monthly income, credit score, etc. To repay the loan amount, you will get a maximum of 20 years. You should choose the tenure according to your repayment capacity. There is one important thing that you need to know that on availing a Plot Loan, you will not get any tax benefits, unlike a home loan. In the below table, you can look at the details of some of the top lenders that provide plot loans.
|ICICI Land Loan||INR 8 lakh to INR 3 crore||Upto 20 years|
|HDFC Plot Loan||Customized (Depending on the Property Value)||Upto 15 years|
|SBI Plot Loan||Upto INR 15 crores||Upto 10 years|
|LIC Housing Finance Plot Loan||Upto 75% of the Plot value||Upto 15 years|
|Bank of Baroda Plot Loan||Upto 75% of the Plot value||Upto 15 years|
Home Extension Loan
A home extension loan is also one of the important home loan types. This loan is for those individuals who want to extend some part in their homes such as floors or rooms. For example, if an individual is living in a home that has two rooms and now, he wants to have another 2 rooms in his house but is having fund constraints. A Home Extension Loan helps an individual in getting the required loan amount at an affordable rate of interest.
With the home extension loan, an individual can opt for a maximum of 90% of the overall construction estimate. It means if there has been an estimate of INR 10 lakh for the construction, you can get upto INR 9 lakh as the loan amount.