Many individuals aspire to own a home; however, buying a house is a significant financial undertaking that requires a substantial amount of cash. Fortunately, banks offer Home Loans to eligible individuals, but it’s essential to compare interest rates, terms, conditions, offers, and tax benefits from various financial institutions before committing to a loan.
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Tax Benefits
Tax benefits play a crucial role in home loans. Under Section 24 of the Income Tax Act, home loan interest payments up to Rs. 2 lakhs during the financial year qualify for tax benefits. Additionally, Section 80C allows for tax benefits on the principal amount up to Rs. 1.50 lakhs. The government incentivizes homeownership by providing tax exemptions on both the principal and interest paid on home loans.
Equated Monthly Installments (EMIs)
When taking out a home loan, it is vital to make regular and timely Equated Monthly Installments (EMIs) to repay the loan amount along with interest. Planning strategies for EMI payments and deciding the loan amount based on one’s ability to repay are crucial. Pre-payment plans should also be considered based on surplus income, allowing for early payments to prevent increasing EMIs due to rising interest rates.
Loan Eligibility
Determining loan eligibility is another essential aspect of obtaining a home loan. Banks generally allow EMIs of up to 40% of an individual’s take-home salary. Knowing one’s loan eligibility in advance is crucial to avoid rejection for unreasonably high loan amounts and to arrange funds for the down payment. Making a down payment of 20% of the total property value can significantly reduce the EMI burden.
See: Strategies to reduce your home loan EMI
Boost loan amount
Applicants with low credit scores or insufficient income often face rejection from banks for home loan applications. However, adding a co-applicant, such as a spouse or female family member with a good credit score, can increase the chances of loan eligibility. It can expedite loan approval and may even result in a 0.05% interest rate concession for women. Having a co-applicant can also enhance the loan amount and facilitate easier EMI payments.
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Pradhan Mantri Awas Yojana (PMAY)
First-time home buyers can benefit from the Pradhan Mantri Awas Yojana (PMAY), a government initiative aimed at providing home loan subsidies to eligible individuals. Urban middle-class individuals with an annual income ranging from Rs. 6 lakh to Rs. 12 lakh can avail a subsidy of up to 4% on interest paid for home loans up to Rs. 9 lakhs. Similarly, those with an income between Rs. 12 lakh and Rs. 18 lakh can receive a subsidy of up to 3% on interest paid for home loans up to Rs. 12 lakhs. This scheme lightens the burden for homebuyers to some extent.
