Key Benefits of Taking a Home Loan - A Complete A-Z Guide

Benefits of Taking a Home Loan - Introduction

A home is anyone’s dream. A small apartment is a dream utility a villa is a dream luxury. The best way to accomplish a dream home is through a home loan. You might fight shy of loans, but for building a home, falling back on savings is a bad idea. Not only is it time-consuming but it will deplete a chunk of your savings. A home loan is packed with benefits that not just help you to return debt on your asset but also help in making savings from taxes. While we discuss the home loan benefits, we will also offer an objective overview of the flip sides of the loan and how you can overcome them to sail through your loan period easily. A homeowner can also take the options of home renovation loans, especially during the festive season. While we discuss in-depth the benefits of a first-time home buyer loan, we will apprise you of all the related benefits of home loans. Let’s start with the most significant benefits of home loans in income tax.

What Are the Benefits of Home Loans In Income Tax?

The Government of India under section 80C encourages home loans and offers an income tax benefit of up to Rs. 3.5 lakhs with an approximate 1.5 lakh deduction on principal repayment. There is a deduction of up to Rs. 2 lakhs on the interest payment under section 24(b).

Benefits of Home Loan in Income Tax under Section 80C (xviii)

A homeowner can claim a deduction of up to 1.5 lakhs under this section on repayment of the principal amount of the home loan during the year. A deduction for stamp duty and registration fee can also be claim u/s 80C (xviii) but within the overall limit of Rs 1.50 lakhs. It can be claimed only in the year these expenses are incurred.

The home loan should pertain to the construction of a new house.

However, it must be remembered that if you wish to avail this tax deduction, you must not sell the property within five years starting from the end of the year in which it was purchased. The benefits of 80C will be reversed, and when you sell the property, it will be counted as an income in that year.

Benefits of Home Loan in Income Tax Payable Under Section 24(b)

This income tax act allows deduction on home loan interest paid of up to 2 lakhs. If you have a self-owned or vacant residential property, you can claim this deduction. Rented properties are exempted from the deduction limit. Home loans applied on or after 01-04-1999 and those properties that were acquired or constructed within 5 years of the end of the financial year when the housing loan was applied for can benefit from this deduction.

On borrowed capital, the deduction of interest will be up to Rs 30,000 if the property has been bought or construction has started before 01.04.1999. If there has been any reconstruction that could include repair or adding and renovating of the property in the same period. Also, if the construction has started but could not be completed in five years.

If you are applying for home loans jointly, the home loan co-applicant tax benefit is worth checking. Joint home loans prioritize your home loan eligibility adding attractive tax benefits for each individual by 1.5 lakhs and 2 lakhs respectively on the principal interest of the home loan. A whopping combined tax benefit of 7 lakhs meeting the prerequisites.

Home loan co-applicant tax benefit comes with the opportunity to apply for higher loan amounts, the advantage being, that the lender regards the credit score of the co-applicant also. Some banks offer extra leverage to female family member co-applicants with an interest rate concession. If you have an earning female family member, avail the home loan co-applicant tax benefit.

Tax Benefits of Home Loan for A Second Home

If you hold two residential properties, you can get tax deductions from the assessment year 2020-21. The aggregate amount of deduction is limited to Rs. 30,000 or Rs 2 lakhs whichever the case is.

Different Types of Home Loans & Their Benefits

Home loans are the most convenient way of purchasing homes and have grown in popularity for this reason. Almost all fund financing firms and financial institutes like public and private banks offer customers attractive home loans. Financing of up to 75-90 per cent can be obtained. While applying for a home loan one must be aware of the interest rate, loan amount, loan tenure, monthly EMIs on the loan and credit score. Home loans are based on affordability. Learn about the different types of home loans and their benefits as we discuss them in detail.

Home Purchase Loans

This home loan is for buying a residential property that includes a flat, villa or bungalow. Banks offer a maximum loan amount of 90% of the current market value of the property.

The loan seeker must fulfil eligibility criteria to avail of a home loan. Each provider has a requirement of different documents mandatory for availing loan. The rate of interest and processing fee varies as per the financial institution. Check if the home loan processing fee includes or excludes GST.

Home Construction Loan Interest Rates

This loan is available for individuals who seek to construct a house on landed property. This loan is also available for those wanting to complete the construction of their unfinished house. This loan too comes with some eligibility criteria that vary from lender to lender. Check the interest rates offered by the lender along with the processing fee.

Home Improvement Loan

This is a loan sought to renovate, repair and refurbish homes. These are popular loan types, and the benefit of home renovation loans is that they work on low interest. The lenders have their eligibility criteria along with interest rates. Study them carefully and avail the one that suits your financial capability.

Home Extension Loans

You might want to extend your home by adding rooms for your growing children. Study the eligibility criteria, the documents required, interest rates and processing fee for the loan. Select the one that matches your returning capacity.

Land Purchase Loans

Home Loan for purchase of land can be considered only in case plot is allotted by Development Authority / Govt. Authority subject to construction of house within 3 years or up to the period allowed by Development Authority whichever is earlier from the date of purchase of Plot.

NRI Home Loans

Non-resident Indians can apply for the NRI Home loans to construct or renovate a new or old house in India. The maximum tenure for this loan is 30 years with a floating interest rate. Do a comparative study of eligibility, interest rate check using home loan emi calculator and processing fee of the loan before you decide on one.

Home Loans Balance Transfer

A home loan balance transfer can be made on the home loan taken from one lender to the other. This is based on eligibility criteria, a study of different rates of interest and processing fees. The benefits of a home loan transfer allow the facility of seeking a loan from a lender with lower interest than from the old lender.

Quick Check

Benefits of First-Time Home Buyer

As a first-time home buyer, you are both excited and apprehensive about taking a loan. The Government has rolled out many benefits for first-time home buyers. The first-time buyer gets an additional tax deduction of INR 50000 on interest on home loans under section 80EE, stamp duty deduction under section 80C with principal repayment and interest deduction under section 24.

What Are the Benefits of A Home Loan Transfer?

Home loan transfers come at low-interest rates which is the most significant benefit of home loan transfer. This saves money when you are repaying EMIs, loans get cleared sooner making you debt free.

The other benefits of a home loan transfer are you can top up your loan over an existing home loan. This loan is without an end-user restriction. This loan amount can be utilized to meet a range of financial commitments owing to its lengthy repayment tenure. The interest rate is competitive. You can manage both the home loan and top-up loan owing to these facilities.

You can renegotiate loan terms which is another benefit of a home loan transfer. Renegotiations can include the increase of loan tenure or decreasing it, whichever works better, making home loan management more convenient.

Improved Customer Service Facilities

You will see the difference in customer service facilities once you avail the benefits of balance transfer home loans.

What Are the Benefits Of A Home Renovation Loan?

Your home is the mirror of your soul. To keep it looking good requires renovation, repair and redecorations. These add up to a cost that may not be affordable. But you don't want to wait to make changes. A home renovation loan is a solution. But is a loan for home renovation a good idea? Let's find out about the benefits of a home renovation loan.

The interest rates for these loans are lower than personal loans.

• If the loan is for a longer term, with a low rate of interest the EMI will be low. A higher rate of interest will make the EMI higher. If you are a salaried individual, with a low income, you can obtain the lowest rate of interest.
• The loan tenure extends over 5-15 years making it easier for borrowers to repay the loan.
• Home renovation loans are tax deductible up to 30,000 per year under the Income Tax Act section 24.
• The total Tax deduction for the interest paid on a home loan for home renovation is Rs. 1,50,000 if you are repaying the loan and claiming tax benefits.
• The maximum tax benefit is Rs. 30,000 if the loan interest is less than Rs.1,20,000 a year.

Why Are Pre-Approved Home Loans in Demand?

Building homes entail a heavy financial burden and homeowners often choose home loans to ease the pressure. With some financial knowledge, you can apply for preapproved home loans that come with attractive benefits. Sanctioned by financial institutions and banks these loans are determined after accessing the eligibility of the borrower. Your eligibility is determined by your income, employment history, credit score, repayment capacity which is dependent on the aforementioned and most importantly your age. Getting a pre-approved home loan and receiving funds are two separately dealt with processes that differ according to their timeline. The preapproved home loans do not involve legal scrutiny and technicalities of the property. The parameters set for preapproved loans have already been mentioned above and based on that the bank or the financial institute flags off the approval letter tying the loan with a rate, tenure, amount and other details. Your eligibility is based on your financial standing and other objectives based on the lender’s specifications.

Benefits of Pre-Approved Home Loan

• These loans come with ease of loan disbursement giving the borrower an idea of how much they can afford.
• The borrower can hunt for properties effectively knowing their spending limit.
• Negotiations become easier as you are in a better place to bargain for the best price. You can call the shots with money in hand.
• Preapproved home loans mostly have a fast turnaround time, which is happens within 1-2 working days.
• If you are serious about buying a property, a preapproved home loan is the most beneficial home loan to apply for.

Conclusion

Owning a home gives a sense of accomplishment. Living in a rented place does not allow you the same happiness as owning a home. Some people prefer to live in rented homes depleting their savings. A home goes through capital appreciation. If you get a home loan approval, with a bit of planning, you manage to repay the loan, and the value of your investment grows by many folds. Home loan interests are market dependent, while interests may go up, they may come down too. So, when the interest dips, repaying the loan amount becomes so much simpler. The tax benefits are the strongest reasons why home loans are loved by both the service and self-employed sectors. Going by all these benefits of a home loan, it is advisable to start investing in property. Start early and invest in homes through home loans as this is one dependable investment source that will never fail you. With the ease of getting home loans and beneficial repayment options, you will never feel the pressure of repayment.