What is a home loan?
A home loan is a specified amount that a person must repay from a bank or financial institution at a fixed monthly interest rate every month through easy monthly installments (EMIs). There are various types of home loans available, but the one most suitable for you should always be related to the interest rate, repayment structure, time frame and other aspects.
Let’s take a look at some types of home loans in India:
Purchase of residential property: Considered the most popular in the home loan category, it is mainly for the purchase of a new house or pre-owned house. One of the most commonly offered products by banks and financial institutions, these loans have interest rates that are either stable or ongoing and are introduced before the first disbursements begin. Interest rates for 2019 start at 8.70% per year and can go up to 10% with an additional percentage fee as processing fees.
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Construction of a house:
One of the types of home loans is a loan for the construction of a home. This type of loan is specifically structured for individuals who intend to build a home on their own. The primary basis for such a loan is that the plot must be purchased within one year to be included in the loan amount. The loan amount makes rough estimates of the cost of the plot as well as the construction cost. The amount can be disbursed in one lump sum or in several installments.
Most banks provide loan options for the purchase of land. Purchasing land provides the buyer with a flexible option to build a house when further finance is available. Some borrowers purchase land solely for investment purposes. A maximum of 85% of the cost of the land assessed by the bank will be sanctioned to the borrower.
Expansion of the house: Some banks and financial institutions provide loans for the expansion or expansion of the house which will include the change of the current structure, construction of new rooms or even expansion of some floors. HDFC Home Extension Loans are one such popular option in this category.
Home Improvement Loan: With the variety of product offerings in the market, such an option is a home improvement loan for repairs and repair work in and around your home premises. This may include upgrading electrical items, repairing roof and tile or even interior renovations. These loans are given for a period of 15 years with interest rate ranging from 9.5% to 10.5% per annum.
Home Conversion Loan: A home conversion loan helps individuals who want to move from their place of residence to a new home that was purchased by a home loan. By transferring the current loan to the new home, the borrowers are able to fund the purchase of the new home and do not need to repay the previous home loan. While this is a very convenient option, this category of home loan is priced very high.
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Balance Transfer Home Loan:
This type of home loan can benefit those individuals who are looking for a lower interest rate or better services. A balance transfer home loan is a loan that is transferred from one bank to another. Many times such a loan is made to repay the remaining loan at a much lower rate of interest offered by the new lender.
NRI Home Loans:
These are tailor made loans for NRIs who are interested in purchasing residential property in India. The formalities and procedures of this loan are different from other loan categories. Depending on the profession of the NRI, the loan is offered with an interest rate range of 8.60% to 10% per annum for a tenure of 20 to 30 years.
Bridged loans: These are structured short-term loans for individuals who intend to purchase a new property. This loan facilitates a stop-gap arrangement that helps a person to purchase a new property until he can identify the buyer for his existing property. Typically, a home mortgage is considered in this type of loan.
Stamp Duty Loan: This loan is given only to cover the stamp duty charge during the purchase of the property. This is mainly for borrowers who are buying high valued assets. It is not a widely known segment of loans.
Knowing about different types of home loans is the key to smart borrowing and paying low interest rate.