To fulfill your dream of owning a house, a home loan is a must. As we cannot afford to pay a huge sum at a time, home loan is an ideal choice for buying a home. Before we proceed further in understanding what actually you should know about home loans, first let's understand what is a home loan?
What is a home loan? [removed][removed] [removed][removed]A home loan is a form of secured loan which is granted by the bank to the borrower against the security of a house/property/flat etc. The bank possesses the ownership of the property and in case the borrower defaults to pay the amount, the bank can take ownership of the property.
Home loan featuresHome loan features such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan are important components of a home loan.
Home loan features – Size of the loanThis is the amount of home loan a borrower requires? For example, you want to buy a house valued at 50 lakhs. You have 10 lakhs in the form of cash. You need a loan of 40 lakhs to buy the house.
Home loan features – Interest rateIt is the most important home loan feature. This is the rate of interest at which the lender grants home loan to the borrower. The interest rate of a home loan varies from bank to bank.
Home loan features – Maturity of the loanThis explains the period till which one can take a home loan. You can take a home loan based on your choice of tenure. Normally home loans are taken for 15/20 years.
Benefits of a home loanThe interest paid and the principal paid on a new loan taken to repay the original housing loan is also allowed as deduction.
Benefits of home loan – Principal paymentAccording to Income Tax act and under Section 80C, deduction is available in respect of repayment of the principal amount of a loan taken to buy or construct a residential house. A maximum deduction of Rs 1 lakh (Rs 100,000) is allowed per year.
Payment made for stamp duty, registration fee and other expenses for the purpose of transferring the property in the name of the assessee also qualifies for deductions under Section 80C. All these deductions, however, should not exceed the overall limit of Rs 1 lakh.
Under Section 24, interest paid on the loan to purchase, construct, is allowed as a deduction. Deduction of Rs 1.5 lakh (Rs 150,000) is allowed, only if the purchase or construction is completed within a period of three years from the end of the year in which the loan is taken.
In short, on a home loan a borrower can save upto Rs 2,50,000 per annum.
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