Home loans are for individuals who are interested in buying/constructing houses. It is supported by banks or financial institutions who loan a certain amount, based on the need of the individual(s). Loans can be applied for purchase, construction or improvement of homes.
For floating rate home loan, the rate of interest varies with the market conditions. They are tied up with a base rate plus a floating element added to it. Floating rate home loans are usually 1-2% cheaper than the fixed rate home loan.
What is a fixed rate home loan?
Repayment of home loans in fixed equal instalments over the period of the loan are categorized as Fixed Rate Home Loans. These rates do not change even with change in market conditions or with changes in loan rates by RBI.
How to repay my loan?
Issue post-dated cheques for the tenure of the loan.
Deduction of amount from the salary
Deduction of the EMI directly from the bank (ECS)
Is prepayment of loan allowed?
Lump sum payment can be made. But in such cases, banks may charge a penalty of the range of 2-3% of principal amount standing subject to Terms and Conditions mutually agreed at the time of signing loan agreement. On the other hand, many banks do not charge that too, if the EMI are paid periodically
What are the other charges included in the home loan process?
Processing Fee for processing charges of the application
Commitment Fee fee for unused credit line or undisbursed loan
Pre-payment Charge for pre-payment of loan
Miscellaneous charges documentation and administration charges
Is there any tax benefit?
The tax benefit on home loan is divided into two sections- Repayment of the principal amount- It is considered under Income Tax Section 80C with a maximum tax deduction of Rs. 150000. Repayment of the interest rate on home loan- You can avail the tax benefit on the amount to interest paid on home loan to a maximum limit of Rs. 2 Lakhs, under Section 24 of Income Tax Act
What is an amortization schedule?
Amortization schedule is a table showing amount of principal and the amount of interest that comprise each payment so that the loan will be paid off at the end of its term. The percentage of each payment that goes toward interest diminishes a bit with each payment, and the percentage that goes toward principal increases. The interest rates differ based on the profile of the customer.