Navigating Financial Options: Understanding Home Loan Finance

The real estate sector is one of the few sectors that has delivered stellar returns over the long run. The returns furnished by the housing sector have been especially phenomenal. Consequently, the majority of Indians invest their money in the real estate sector. 

Unfortunately, over the years, the prices of properties have skyrocketed, which has brought good returns for people who were already invested in the real estate sector but has made it difficult for individuals from lower-income and middle-class groups to invest in the real estate sector. Home loans or home loan finance provides a solution to this problem.

What is Home Loan Finance? 

Individuals who wish to buy a home but do not have the required funds can do so by availing themselves of a home loan. A home loan is a loan availed of to buy a residential property. It is a type of secured loan — the property bought with the loan money secures the loan. 

The home loan borrower can use the residential property bought with the help of the home loan however they like. However, they cannot sell the property until they have cleared the entire loan for the lender places a lien on the property which is removed only after the borrower has paid off the entire loan. 

In the next section of this article, we discuss the working of home loans.

Home Loan Finance: How Does it Work? 

Many lenders in the market offer home loan finance. Borrowers can borrow a loan amount keeping in mind their income and loan eligibility. While applying for housing finance, one must keep in mind that for properties priced above Rs.75 Lakh, the home loan amount cannot exceed 75% of the property’s value. 

For properties priced under Rs.30 Lakh, the LTV ratio can go as high as 90%. Borrowers must always apply for a housing loan keeping in mind the amount they are eligible for. 

Your lender will charge housing loan interest on the amount borrowed. You will have to pay the loan amount along with the interest owed through home loan equated monthly instalments or home loan EMIs. 

Every EMI you pay will be divided by your lender to cover the interest as well as the principal component of your home loan. During the initial years, lenders divert the bigger portion of your EMIs towards the recovery of the interest component of your home loan. 

Once the major portion of the interest is repaid, the major portion of one’s home loan EMIs are diverted towards the repayment of the principal component of the loan. 

After you have repaid your home loan, your lender will lose any legal rights it had over the property and the residential property will get completely transfered in your name. 

Home loans are a long-term commitment involving a substantial sum. Borrowers planning to avail themselves of home loan finance must therefore decide to avail of these loans after carefully considering the pros and cons. In the next section, we discuss some simple things that one must keep in mind when availing of home loan finance. 

Planning to Avail Yourself of a Home Loan? Keep the Following Things in Mind

1. Always use a home loan calculator. A home loan calculator is an online tool that lets you calculate home loan EMIs for different combinations of loan tenor and loan value. The calculator helps you correctly assess your repayment capacity and decide the most ideal combination of loan value and loan tenor for you. 

2. Apply for a home loan amount that you are eligible for. Borrowers can use the home loan eligibility calculator to calculate the loan amount they can apply for. Applying for a home loan amount that you qualify for increases your chances of getting approved for a home loan and that too on the most beneficial loan terms and conditions. 

3. Home loan applicants must always negotiate for the lowest housing loan interest rates they can get. Housing loan interest rates have a direct impact on the loan applicant’s EMIs, interest payout and the total cost of borrowing money. Maintaining a high credit score, opting for a low LTV ratio loan, keeping one’s debt-to-income ratio under 30% and having a stable job and income are some of the things borrowers can do to establish eligibility for the lowest home loan interest rates. 

4. If you find another lender willing to refinance your loan at a lower rate of interest, opt for the home loan balance transfer facility. However, opt for this facility only after performing a thorough cost-benefit analysis.