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| June 24, 2021

Home Loans and Mortgage – Here’s What You Should Know

Having a home is synonymous with a sense of identity and its ownership is sacrosanct. However, buying a home has become a Herculean task today, owing to the rapidly increasing property prices. This, in turn, results in the increased demand for home loans as they help you bring alive the dream of having a home. Additionally, it caters to the requirements of homebuyers from different sections of society and also brings along the advantages of tax benefits on the interest paid and the loan amount repaid. This bouquet of features makes the home loan a favourable choice for homebuyers, especially for those with restricted financial capabilities.

There are several renowned banks and NBFCs (Non-Banking Financial Services) that offer different types of home loans to buyers. These service providers assist the buyers in terms of assessing the builder’s credibility and track records along with the legal documents of the building before they sign the deal. Additionally, they have introduced home loan schemes for niche segments. To quote a few, there are home loan schemes for women, agriculturists, and loans exclusively for the purchase of land, making it easier for homebuyers to get their dream come true.

While all this may have convinced you about the need to apply for a home loan, you may be wondering what type of home loan is suitable for you. To help you better, we have enlisted all the essentials about the different types of home loans that you must know of. But before jumping into the types, let us first understand what is a home loan and how does it work?

What is a home loan?

A home loan is an amount of money that an individual borrows from a bank or other financial institution at a set rate of interest and for a specific period. People generally take home loans for either buying a house/flat/land, construction of a house or renovation/extension to the existing house. This property is hypothecated with the lender as a security till the repayment of the loan along with the interest and principal amount in the form of monthly EMIs.

On successful repayment of the loan amount, the property comes in complete ownership of the borrower and in case of failure, it is claimed by the lender to recover the loan amount.

Different Types Of Home Loans

People apply for a home loan not just for buying a home but for a variety of other reasons. Some of the popular types of home loans are mentioned below.

  • Loan For Purchase Of Land

    A loan for the purchase of land is for buyers to save funds and construct a house whenever the finances allow or simply have the land as a means of future investment.

  • Loan For Home Purchase

    This is among the best types of home loans, taken to purchase a new or pre-owned residential property, be it an independent house or a flat. The interest rate in this type of loan is either fixed or floating.

  • Loan For Construction Of A House

    People who already own land and are planning to construct a house consider this type of home loan. Its process takes into consideration the cost of land, however, subject to its purchase within a year of the loan application.

  • Loan For Home Expansion Or Renovation

    Yet another popular choice among different types of home loans for renovations like altering the existing house structure or expansions like constructing a new balcony/floor/room.

  • Loan For Home Conversion

    People who already purchased a house from the availed home loan, but are willing to move to a new house can easily transfer the current loan to the new house without any hassle.

  • Balance Transfer Home Loan

    Among the best types of home loans schemes that can be availed when an individual wants to transfer the loan amount from one bank to another because of reasons like low-interest rates, better services, and more.

  • NRI Home Loan

    The scheme is designed to support non-resident Indians interested in buying a house in India. The documentation and process for this type of home loan are slightly different from the other schemes.

  • Bridge Loan

    The best type of home loan that funds for a new property until a buyer is identified for their existing property to pay back the loan amount. This scheme involves mortgage of the property as security.

  • Stamp Duty Loan

    Not a very common type of loan, it covers the stamp duty charges levied on the buyer during the purchase of a property

What is a home mortgage loan?

A home loan that is secured by keeping a property as collateral with the bank or NBFC is called a mortgage loan. This collateral is a promise made by the borrower to pay back the loan amount in any form within a specified period, which is called loan tenure. Besides, it is legally binding that gives the lender an added right to claim the mortgaged property and the new purchase in case the borrower is unable to repay the loan.

While the repayment of a home mortgage loan is the same as any other home loan scheme, it comes with the additional insurance cost of the mortgaged property to protect both the lender and borrower from the risk of loss due to any kind of hazard.

Types Of Mortgages

Enlisted are the different types of mortgages available for home loan schemes.

  • Simple Mortgage

    The scheme under which the borrower mortgages a pre-owned immovable property to get funds for a new one. Here the lender has the right to sell the property in case of repayment failure.

  • Usufructuary Mortgage

    The scheme where the property is transferred to the lender who can receive rent or profits from it without putting any personal liability on the borrower.

  • English Mortgage

    The scheme where the borrower has to pay the monthly EMIs against the loan taken and the property’s possession stays with the lender until the complete repayment of the loan.

  • Conditional Sale Mortgage

    The scheme where the borrower sells the property to the lender with certain conditions that become effective when he or she fails to repay but, it turns void on successful repayment.

  • Title Deed Deposit

    The scheme where the borrower submits the title deed of the property to be mortgaged with the lender against the home loan.

  • Anomalous Mortgage

    The mortgage here is defined by the conditions under Section 58G of the Transfer of Property Act, 1882 as per Indian law.

How Does It Help Homebuyers?

The benefits drawn by different types of home mortgage loans are listed below.

  • Low Borrowing Cost

    A mortgage guarantee is accepted as a home loan scheme by the majority of financial institutions. This allows borrowers to explore the market and find lenders with the lowest interest rate against the offered loan amount.

  • Early Ownership

    A home loan backed by a mortgage guarantee helps the borrower to have early ownership of the house in addition to the improved affordability and flexibility of financial planning.

  • Enhanced Loan Eligibility

    The mortgaged property is a guarantee that helps lenders to mitigate credit risks and allows borrowers to secure a higher amount as a home loan supported by a minimum down payment, longer tenure, and affordable EMIs.

The thought of buying a new house can be daunting when having financial constraints. However, the different types of home loans act as a boon for homebuyers to be able to buy their dream house with ease.

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