A house loan is one of the most critical financial decisions you make when you buy a house, and it is necessary to understand what types of loans are available and how they work. Whether you are buying your first property or expanding your portfolio, securing the right house loan can ensure that you make an informed and affordable investment. This is a general guide about house loans: different types, comparing them to loan against property financing options, and the benefits of this loan type.
What is a House Loan?
A house loan is basically the provision of banks and other financial institutions to acquire a house. These kinds of loans are paid after a period of time with a fixed or floating interest rate for a period as long as 5 to 30 years. Usually, it asks the borrower for EMI that includes a combination of both the principal amount and the amount of interest.
Types of House Loans
- Home Purchase Loan
This is the most popular type of house loan, for those looking to buy a new or old property. This amount is borrowed against the market value of the property and gets repaid over a specified period of time. The salaried and the self-employed individuals can also acquire this type of loan, based on specific eligibility criteria. - Home Construction Loan
If you possess land, you can opt for a home construction loan. This loan caters for the cost incurred in its construction. Fund disbursals are usually done at different levels as per the progress percentage of the building. Hence, this form of loan might demand a full construction plan along with project approvals from concerned local authorities.
The Benefits of Taking a House Loan
- Tax Benefits
Tax benefits under Section 80C and Section 24: Amongst the other prime advantages of a house loan in India is tax benefit available under Section 80C and Section 24. Here, Section 80C will deduct a principal repayment of up to ₹1.5 lakh. Also, under Section 24, a person is allowed to claim up to ₹2 lakh on interest paid on a loan. - Ownership of Property
A house loan allows one to own a property without having to wait years for enough savings. You start living in your own house immediately because, by availing a loan, you can begin to do so right away and then repay over time.
Loan Against Property: An Alternative Financing Option
This also includes the loan against property option, which is another possible one. A loan against property allows you to take the help of money by keeping the collateral available using the already present residential or commercial property. This kind of loan is ideal for someone who requires a large amount of money but does not have liquidity.
How Does a Loan Against Property Work?
When you avail a loan against property, the lender computes the value of the property and gives you a loan amount that is a percentage of the market value of the property. The loan is recovered through monthly EMIs like any home loan and the property is kept by the lender as collateral until such time as the loan is repaid fully.
Who Can Avail a Loan Against Property?
- Homeowners
If you already have a residential property, then you can avail of the loan against the property for your financial needs, for example, funding education, meeting medical emergencies, or to meet business expenses. - Commercial Property Owners
Commercial property owners can also take a loan against property to raise funds for business expansion or other business-related expenses.
Benefits of a Loan Against Property
- Quick Disbursement
As it is an asset-secured loan, it can receive quick approvals and disbursements more compared to other unsecured types of loans such as personal loans. - Lower Interest Rates
As this is an asset-secured loan, the lender grants more competitively and often with lower interest rates than many types of loans.
Conclusion
Whether you need a house loan to buy your first home or are seeking a loan against property to meet urgent needs, it is imperative to select the right loan based on the goals and financial condition of the borrower. Each type of loan provides different benefits and knowing these will help you to make the right decision. Always ensure that you carefully evaluate the terms, interest rates, and conditions of repayment before committing to any house loan.