Everything to Know About Home Loans and Mortgages
Your home is a source of long-term capital gains (LTCG) as well as a shield for contingency. Home loans and mortgages are two different aspects of owning a property. Home loans are used as a financial source for buying or constructing a residential property, while a mortgage is a loan secured by issuing the property you own as a guarantee.
Let us assess each parameter and how you can avail their benefits–
Home loans in India
The home buying process starts with formulating a budget. Home loans are designed to cover this mammoth expense. You can own a home with convenient EMIs as per your budget. The Reserve Bank of India (RBI) determines the margin of interest rates issued by the banks. Typically, the tenure of home loans lasts up to 15-30 years, depending upon the principal amount and your financial conditions.
Moreover, you can also enjoy tax exemptions under section 80C, claiming a deduction of up to Rs.1.5 Lakhs.
Most residential projects are endorsed by banks that offer home loans after calculating the valuations of the projects. Home loan eligibility is assessed based on your age, income, steady job security, income tax, and evaluation of the risks of repayment.
Here are a few home loan tips before applying:
- Your financial blueprint should include the monthly income of the household, existing debts, bills and utilities, and miscellaneous expenditures.
- Choose EMIs according to the set financial goals & opt for contracts that allow flexibility. EMIs depend on the down payment as well, hence it is better to put down the maximum amount at the time of purchase. By the rule of thumb, your EMIs should not exceed 30-45% of your total income.
- Longer tenure may yield a lower EMI amount, but the interest levied will increase over such a long period. Shorter repayment tenures are recommended.
- Your credit score will help you with lower interest rates. Maintain your CIBIL score above 750.
Mortgage loan vs home loan
As mentioned earlier, your home is a great asset when you need personal financing. When one needs a personal loan or business loan, the property is considered great collateral to avoid risks.
In this loan, the mortgagor borrows money from the mortgagee (lender), who sanctions the loan by keeping an asset the borrower owns (can be anything of market value) as a guarantee. In case of failure of repayment of loans, they can sell off this asset to cover the principal amount.
Difference between mortgage and home loans
- In a home loan, the property is considered collateral by the banks. In Mortgages, you secure an added loan by keeping your existing property as collateral.
- Interest rates issued on home loans are lower than that on mortgages, as the RBI wants more people to buy homes.
- The tenure for mortgages is often lower than that of home loans. One can also opt for partial or full repayments to reduce this tenure.
- In mortgages, you can opt for an extension of the loan amount if the market value of the collateral allows more eligible amount— also known as top-up loans. Home loans don’t have such options.
Home mortgage loans
In the debate of buying vs renting a home, owning a property has greater benefits in the long run. A loan against property (LAP) is taking out a mortgage by issuing a property you own (home, commercial, or plot) as collateral.
Since real estate is a prized asset, the levied interest rates are usually lower than other assets as guarantees. Plus, you can opt for higher loan amounts. This property remains collateral until the repayment of the loan.
Types of mortgage loans
- Fixed rate: A predetermined interest rate for fixed monthly installments.
- Floating rate: Interest rates are variable due to the repo rate issued by RBI.
- Simple mortgage: The property is not transferred to the lender, but they can sell it in case of failure of repayments.
- Adjustable rate: Fixed interest rate for the initial period, but changes according to the economy’s performance.
- Subprime: Offered to borrowers with poor credit scores, but with higher interest rates.
- Usufructuary mortgage: Receiving an income by selling the property to the lender which is adjusted for the principal amount and interest on the mortgage loan.
- English mortgage: If not able to pay the loan amount, the property is transferred to the lender. But if the amount is repaid later, they can retrieve their asset.
Property for sale in Pune has been in rising demand as one of the top 8 cities. According to the Punekar News report: Millennials are the active contributors to the housing market with over 50% in 2020. As a result, banks have issued several policies on home loans for low-risk candidates with high credit scores; thus, encouraging the working professionals to buy property in Pune.
If you are looking for a property in Pune, then Kolte-Patil Developers offers several projects throughout the city with an array of price-range, lifestyles, environment, locations, and benefits.
Q1: What is the tenure of home loans?
A: A max of 30 years is allotted for home loans as long-term instruments. It depends upon the sanctioned amount.
Q2: What are the eligibility criteria to apply for home loans?
A: All you need is a proof of steady and regular source of income, regardless of if you are self-employed or working at a firm.
Next important factor is your age— standard requirement is 23-62 where the maximum age is considered at the time of loan maturity.
Q3: Does home loans or HRA give more tax benefits?
A: Evaluating the tax deductions, home loans allow more tax benefits than HRA in most cases.
Q4: What are the types of Home Loans?
A: you can choose among the following as per your requirements–
- Home-purchase loans
- Land-purchase loans
- Home-extension loans
- Home-construction loans
- NRI home loans
- Home-improvement loans
- Home-conversions loans
Q5: Can I put the commercial property as a mortgage?
A: You can put the commercial property as collateral, only if you are renting it out or is a vacant property. The vacant option allows high-value loans, but there should be no existing disputes over who owns the property.
Q6: Do banks sanction home loans for Kolte-Patil projects?
A: All Kolte-Patil projects are backed by major banks in India with an average interest rate of 6-8%.