What is a Home Loan?
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A home loan is a secured loan taken from a financial institution to buy a new or a resale home, construct a home or renovate or extend an existing home. A loan which is taken against a property, which is already owned by the person is called loan against property (or LAP)
In both these types of loans, i.e Home loan or LAP, the property under question is used as collateral. The money is borrowed at a specific interest rate and repaid within a particular duration in smaller instalments known as EMIs (Equated monthly instalments)..
Flexible Rate and Fixed Interest Rate Home Loans
A Fixed ROI loan is a loan where the rate of interest on the loan charged by the bank is fixed throughout the tenure of the loan, while in a Flexible rate loan, the ROI changes with the change in Base rate of the bank. Banks offer a choice to the customer to opt for a flexible home loan rate of interest or a fixed rate of interest. If a customer believes that rates are going to constantly rise in the future, then he may decide to opt for a fixed ROI. However, if he/she thinks that current ROI is high and in future the rates are going to decrease, then they may opt for a flexible ROI. However, fixed rate loans are uncommon these days, because the rates are fluctuating very wildly, and it is difficult to predict with certainty whether the rates are going to constantly rise or constantly fall in the future. Hence Flexi rates are commonly adopted.
Types of Home Loans
Financial institutions in India offer different types of home loans to suit the specific needs of customers.
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Home Loans
This is the most common type of home loan. This loan is meant for buying a new apartment, row house, or bungalow, from a developer or a development authority, or from an existing owner. The property under question can be a ready to move in property, or a property under construction.
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Home Construction Loan
You can avail a home construction loan if you already own a plot and require funds for the construction of the house on that land. In this case, banks normally make payments directly to the agency/builder who is constructing the house, against bills.
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House Renovation Loan
If you already own a house and want to renovate it, you can apply for a house renovation loan. You can avail a house renovation loan for painting, tiling, roof repairs, etc. The loan amount is disbursed to the contractor/builder who is renovating the house, on the basis of bills raised for the work done.
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Home Extension Loan
As your family grows, you may need a bigger house to accommodate all the members comfortably. A home extension loan could be helpful in such a situation. You can use this loan to fund the cost of adding a new room/floor to your home, extending the kitchen, building a new bathroom, etc.
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Balance Transfer Loan (BT)
Housing Finance Companies (HFCs) and banks offer this this type of loan that allows you to transfer your existing home loan from one lender to another. A Balance Transfer is usually done to get loans at a lower interest rate, flexible repayment terms and sometimes for additional loan, which is called top-up loan.
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