Owning a home is a dream for many, but turning this dream into a reality takes more than just sheer willpower. Residential property prices in India have increased over the past decade. This surge is significantly outpaced by income growth and inflation, making it difficult than ever to own a home.
In such a situation, many investors have started to turn to home loans, a financial instrument that can help bridge the gap between their dreams and reality. But before taking one, it is recommended to understand what a housing loan is and how beneficial would it be for you.
What is a Home Loan?
A home loan is a type of loan that allows you to purchase, construct, renovate, or extend residential property. The lender uses the property as collateral for the loan, which means that if a person fails to repay the loan, they may lose ownership of the property to the lender.
Eligibility Criteria for a Home Loan
Now that you know what a housing loan is, here are some eligibility criteria that you must fulfil to avail of one:
- Nationality: Applicants must be Indian residents.
- Age: The applicant must be aged between 18 to 70 years.
- Employment Status: The applicant must be salaried or self-employed.
- Income: A steady income is required, with most lenders having a minimum salary threshold of ₹25,000 per month for salaried individuals.
- Credit Score: A CIBIL score of 700 or above is generally considered ideal for securing a home loan.
Benefits of Taking a Home Loan
- Low Interest Rates
Unlike other unsecured loans, a home loan offers relatively lower interest rates. This low monthly payment can help you save a lot in the long term.
- Enjoy Tax Benefits
To incentivize home ownership, the government offers some tax benefits on both the principal amount and interest portion of your repayments. For instance, under section 24B of the Income Tax Act, you can claim up to 2 lakhs on the interest paid towards your home loan.
To accurately estimate the potential tax savings, you could enjoy on your home loan, consider using a house loan tax benefit calculator.
- Flexible Tenure
Home loans offer a flexible tenure, extended to as much as 25-30 years. This allows you to lower your monthly EMI and manage your finances better.
- Owning a Long-term Appreciating Asset
Real estate usually appreciates in value over time, which means that by taking a home loan, you are not just buying your dream home, but also investing in an asset that will grow in worth over time.
- No Prepayment Charges
Home loans do not have any prepayment charges associated with them. This means that anytime you have a lump sum of money, you can use it to repay your home loan without having to worry about any penalty.
A home loan is a great financial tool to own your dream home, offering you many benefits. However, make sure to understand the ins and outs of these loans to make more informed decisions when applying for one.
