The majority of Indians see the residential sector as an investment opportunity. Prices of residential properties have witnessed steep increases in prices over the last few decades and given how a growing section of the Indian rural population is slowly migrating to urban areas in search of better employment opportunities and lifestyle, it is only fair to say that the residential sector will witness a further increase in prices in the coming years. Thus, for investors, the real estate sector provides lucrative investment opportunities. More importantly, over the last few years, property rentals have witnessed exorbitantly high hikes and have almost become unaffordable. Thus, most taxpayers prefer to buy a home rather than rent it out. Home loans make it possible for individuals to afford their dream home conveniently while also saving their tax liability through home loan tax benefits.
Home loans are loans availed of for investing in residential properties. The many benefits associated with these loans make them a prevalent choice. Low home loan interest rates, substantial loan amount, long repayment tenor, easy repayment method, home loan tax benefits, etc., are some of the things that can be attributed to the popularity of home loans. If you plan to avail yourself of housing finance, know that home loans are of a few different types. Let us look at the various types of home loans available so that you have a clearer understanding of what home loan type would be right for you.
Types of Home Loans: Different Home Loan Types You Must Know About
Basic Home Loans
These are the most common types of home loans available in India and across the world. Under these types of home loans, a borrower borrows funds to buy a residential property and the residential property then serves as security or collateral. After the borrower has repaid the principal amount along with interest, the lender loses any legal right on the property and the property is transferred back into the borrower’s name. Under these types of home loans, borrowers can easily get up to 85% of the pledged collateral’s fair market value as a loan. Basic home loan interest rate starts from 8.50% per annum. These loans are in fact the cheapest of all loans. If you are planning to apply for a basic home loan, read about the home loan process and keep the home loan documents ready to experience a smooth and hassle-free loan application process.
Home Construction Loans
If you do not want to invest in a villa or apartment in a gated community and instead want to buy land and construct a villa on it as per your liking and preferences, you must avail yourself of a home construction loan. Home construction loans are loans that people avail of to undertake construction on land. One of the key differences between a home loan and a home construction loan is that in the case of home loans, the entire amount is disbursed in one go whereas in the case of home construction loans, the loan amount is released in tranches. In the case of a home construction loan, the loan borrower has to only pay interest on the amount disbursed by the lender.
Home Improvement Loans
These days, undertaking a home improvement or refurbishment job is not an easy task. Just adding a room to your home can compel you to spend in lakhs. Therefore, some lenders have started extending home improvement loans. These are loans that people avail of to undertake refurbishment, improvement or home extension projects.
Home Loan Top-Ups
If you are currently repaying a home loan and have a clean and reliable repayment track record, along with a high CIBIL score and a high income, you can borrow a second loan against your home’s equity. This loan is known as a home loan top-up and these are loans availed of over and above a home loan. Top-up home loans come with no end-use restrictions. Borrowers can use the loan amount to start another business, buy another home, pay for a child’s wedding or even take a foreign trip. Home loan top-up interest rates are low and the repayment tenure is long.
Conclusion
These are the different types of home loans available in India. If you are planning to avail yourself of housing finance, make sure to choose the right loan type for you.
