It goes without saying that home loans are one of the most popular and convenient ways to finance the purchase or construction of a residential property. Home loans can also be used for home improvement, extension, or renovation purposes.
However, not all home loans are the same. There are different types of home loans in India, each with its own features, benefits, and eligibility criteria. If you are exploring the possibility of taking a home loan, then this guide will help you figure out your options in terms of different types of home loans in India.
Types of Home Loans in India
Home loans are loans secured by a property, meaning that the lender can take possession of the property if the borrower fails to repay the loan. Depending on multiple factors, there are different types of home loans available in the market.
Some of the most common ones are:
1. Home Purchase Loan:
This is the most basic and common type of home loan that allows you to buy a new or resale property from a builder, developer, or seller. The loan amount depends on various factors such as income, credit score, property value, location, etc. The loan tenure can range from 5 to 30 years, depending on your repayment capacity and preference. The interest rate can be either fixed or floating, depending on the lender and market conditions.
Some of the benefits of a home purchase loan are:
- You can avail tax benefits under Section 80C and Section 24 of the Income Tax Act on the principal and interest constituents of the loan, respectively.
- You can get up to 90% of the property value as a loan amount, subject to your eligibility and the lender's norms.
- You can choose from various repayment options such as EMI, pre-EMI, step-up EMI, etc.
2. Home Construction Loan:
This type of home loan is suitable for those who want to construct their own house on a plot of land they own or have acquired. The loan amount is disbursed in stages as per the progress of construction. The interest rate is usually floating and is calculated on the basis of the outstanding loan amount at each stage. The loan tenure can be up to 30 years or until the completion of construction, whichever is earlier.
Some of the benefits of a home construction loan are:
- You can avail tax benefits under Section 80C and Section 24 of the Income Tax on both components of the loan.
- You can get up to 80% of the construction cost as a loan amount, subject to your eligibility and the lender's norms.
- You can save on stamp duty and registration charges compared to buying a ready-to-move-in property.
3. Home Improvement Loan:
This type of home loan is meant for those who want to renovate, repair, or upgrade their existing property. The loan amount can be used for various purposes such as painting, flooring, plumbing, electrical work, furniture, fixtures, etc. The loan amount depends on various factors such as your income, credit score, property value, location, etc. The loan tenure can be up to 15 years or until the completion of improvement work, whichever is earlier. The interest rate can be either fixed or floating, depending on the lender and market conditions.
Some of the benefits of a home improvement loan are:
- You can avail tax benefits under Section 24 of the Income Tax Act on the interest component of the loan.
- You can enhance the value and comfort of your property by making it more functional and aesthetically appealing.
- You can choose from various repayment options such as EMI, pre-EMI, step-up EMI, etc.
4. Home Extension Loan:
This type of home loan is similar to a home improvement loan but is specifically designed for those who want to add more space or rooms to their existing property. The loan amount can be used for purposes such as building an extra floor, balcony, terrace, garage, etc. The loan amount depends on various factors such as income, credit score, property value, location, etc. The loan tenure can be up to 15 years or until the completion of extension work, whichever is earlier. The interest rate can be either fixed or floating, depending on the lender and market conditions.
Some of the benefits of a home extension loan are:
- You can avail tax benefits under Section 24 of the Income Tax Act on the interest component of the loan.
- You can increase your property's living space and utility by accommodating your growing family needs or lifestyle preferences.
- You can choose from various repayment options such as EMI, pre-EMI, step-up EMI, etc.
5. Home Conversion Loan:
This type of home loan is ideal for those who want to move to a new property without selling their existing one. The loan amount can be used to buy a new property while transferring the balance outstanding on your existing home loan to the new one. This can be useful if you want to upgrade to a bigger or better house or if you want to relocate to a different city or area.
Some common features of home conversion loans are:
- You can avail up to 80% of the cost of the new property as a loan amount, with the tenure being over a period of up to 20 years.
- You can enjoy tax benefits on both the interest and principal components of the loan under Section 24 and Section 80C of the Income Tax Act, respectively.
- You can also opt for a top-up loan if you need additional funds for furnishing, renovation, or other expenses related to your new home.
Conclusion
Hopefully, now you have a better idea of which type of home loan to seek in India best fulfils your requirement. By making an informed decision and choosing the right home loan, you can easily take care of your finances.
