What is a Home Loan? Meaning, Benefits, Types, and Features

A home loan is sometimes the solution that lets many people make their dream of owning a home a reality. Check out this guide to learn about the details of a home loan, including its pros, types, features, and how to determine your future borrowing capacity.

What is a Home Loan?

Banks or financial institutions offer home loans to anyone who wants to buy, build, or renovate a house. While you have an outstanding loan, the house is used as security until the loan is repaid. Generally, to repay the loan, borrowers pay amounts with interest each month over a tenure chosen by them, typically ranging from 15 to 30 years.

Key Benefits of a Home Loan

• Tax Benefits: You can take advantage of tax savings on your home loan from the Income Tax Act’s sections 80C and 24(b). Deducting both interest and principal from your income will allow you to reduce your tax bill.
• Lower Interest Rates: Properties that have set security usually obtain loans at lower interest rates than those for unsecured investments. The rate for a personal loan in India is projected to be 8.10% per year, based on your financial situation and the lender, by 2025.
• Flexible Repayment Tenure: Home loans allow you to choose a repayment period of up to 30 years, making your monthly payments easier to handle.
• No Prepayment Penalty: Most people don’t have to pay extra to repay floating-rate home loans early.
• Build Credit Score: On-time repayments of your home loan increase your credit score, which makes it easier for you to get future credit.
• Due Diligence on Property: Lenders perform complete checks on the property to reduce any risk of cheating and secure your money.

Types of Home Loans

• Standard Home Loan:  Newly bought or sold residences. The usual plan for both salaried and self-employed workers.
• NRI Home Loan: Non-resident Indians who want to obtain a loan to buy home property in India can take advantage of NRI Home Loan, which has particular rules for eligibility.
• Home Construction Loan: If you own a suitable plot, a Home Construction Loan is used for building a new home.
• Home Improvement Loan: For improving your existing house by means of repair or new construction.
• Home Loan Balance Transfer: Home Loan Balance Transfer makes it possible for you to change lenders for a better home loan experience.
• Fixed and Floating Rate Loans: Fixed rates stay the same, so your EMIs won’t change, but floating rates can rise or fall with the market.

Features of a Home Loan

• Secured Loan: Any property can be secured to help the lender take less risk, meaning they are able to loan higher amounts.
• Long Tenure: Due to the long repayment periods, which can last up to 30 years, more individuals can become homeowners.
• Flexible Eligibility: Qualifying for a loan is determined by income, age, credit and the ability to repay the money.
• Balance Transfer Facility: With a Balance Transfer Facility, you are able to change your lender for a better price or better conditions.

How Much Home Loan Can I Get?

As a Determine customer, the loan you could receive depends on your finances, your age, credit background and what you already have to pay off. Normally, FOIR, the Fixed Obligations to Income Ratio, gives banks the required information. If you earn ₹40,000 per month, a home loan could be around ₹22–25 lakh, and with a monthly income of ₹80,000, you might receive ₹60–65 lakh. Other details, such as your credit rating and repayment history on existing loans, are also considered when determining what you can borrow for a home.