Things to Remember Before Taking Home Loan

From the time of Neanderthals, the basic requirements of humans are Food, Clothes and Shelter. These requirements have changed their standards with advancement in civilization and technologies.

Home is one basic requirement for living. This is required by every living species, especially human beings. Every individual has right to have their own home. A majority only dreams for this. In present times constructing or buying a home is very difficult and exhaustive task. People don't have sufficient money and time to invest in constructing homes. Also continuous zooming rates of property does not allow an individual to buy a home from its savings. This situation directs them to take Home Loan.

Technically, a Home Loan is a loan that is obtained from Tathastu HCBL Bank, Financial Institution or Mortgage Company at static interest rates and payment terms for purchasing a home. In simple words, Home Loan is the reasonable amount of money given by a bank to its customer for buying a home. The rate of interest and offers on loan depends on the bank. Assorted banks have assorted interest rates, offers and tenure.

Home Loan has some of the following avails:

Tax Avails

According to Section 24(b) of Income Tax Act, 1961 a person can claim for a deduction up to Rs. 1.5 lakh from the income tax at the total interest that a person has to pay for the loan. In case of loan taken prior to March 01, 1999, the deduction stands reduced to Rs. 30,000.

According to Sections 80C and 80CCE of the Income Tax Act, 1961 a deduction up to Rs. 1 lakh as Principle Repayment on the home loan can be done from gross total income if the prescribed condition is fulfilled.

Interest Avail

Loans are of two types, Long Term Loans and Short Term Loans. Short Term Loans are better than Long Term Loans because it has a less probability of fluctuating interest rates. In Long Term Loans, interest rates may rise and fall several times and borrower faces many problem regarding loan tenure. The borrower should try to pay a major part of the loan when interest rates fall. This will benefit the borrower and reduce the loan tenure.

Interest Rates on Home Loan

Interest Rate is associated to lender's base rate which is decided by the banks on the Reserve Bank of India guidelines. It depends on liquidity, inflation and monetary policies. Interest rates are of two types, Fixed Rates and Floating Rates.

Fixed Rates remain same for entire term of the loan as compared to Floating Rate. Fixed Rates are 0.5% - 1.5% higher than Floating Rates. If a person feels that interest rates are likely to come down then he should opt for floating rate.

The interest rates for different public and private sector banks ranges from 10.25% to 11%. Some public sector banks provide special interest rate for women borrowers.

Tips before finalizing loan

• Analyse terms and condition of each loan agreement.
• Analyse Equated Monthly Instalment (EMI).
• Negotiate on Interest Rates.