A home loan is a financial instrument that plays a crucial role in making homeownership dreams a reality for countless individuals in India. This comprehensive guide will walk you through what a home loan is, how it works, and everything you need to know about this important financial tool.
Home loans can be used for various purposes, including buying ready-made homes, constructing a house from scratch, renovating or repairing an existing property, or even purchasing a plot of land for future construction. These loans typically come with attractive benefits, such as tax deductions on both the principal and interest repayments, lower interest rates compared to other types of loans, and due diligence checks to ensure property legality and ownership.
Home loan repayment involves returning the borrowed amount to the lender, along with the interest charged. Typically, home loans in India have repayment tenures ranging from 10 to 40 years and are paid back through Equated Monthly Instalments (EMIs) according to an amortisation schedule determined by the lender.
When you make EMI payments, you are not just repaying the principal amount but also the interest accrued over time. The interest rate on your home loan can vary depending on factors like your credit score, monthly income, and existing liabilities. It's crucial to understand the terms of your loan and the repayment schedule before committing to a home loan.
Additionally, home loan borrowers have flexibility in choosing their repayment options to align with their financial circumstances. Some of these options include:
Home loan disbursement involves releasing the loan amount for property purchase or construction. After applying and verifying documents, the lender sanctions the loan, specifying the amount, interest rate, and tenure. Property valuation may determine the final loan amount.
Upon agreement, the lender disburses funds, sometimes in installments for construction or renovation. Repayment starts via EMIs, continuing as per the schedule until full repayment. Borrowers must follow the loan agreement terms for a successful home loan experience. Disbursement amounts and timing depend on the property's value and the loan agreement.