Factors to be considered for Home Loan

How much should you borrow?

Borrow only as much as you can repay easily. Over indulgence can lead you into a debt trap recovering from which may be difficult. Apart from monthly EMI payments, you must be able to save some percentage of your income for contingencies. This will be of use in case of emergencies

What are the tax Benefits?

The repayment a borrower makes towards his home loan can significantly reduce his tax liability. The tax benefits are a big draw for the salaried class to invest in a property.

Under Section 80C of the income Tax Act, Principal repayment up to Rs. 1 lakh on your home loan for purchase (or construction) of a residential property will be allowed as a deduction from the gross total income.

A deduction up to Rs. 1.5 lakhs towards the total interest payable on the home loan towards purchase (or construction) of a house can be claimed while computing the ‘income/loss from house property’ as per section 24(b) of the Income Tax Act. This is in case of a self-occupied property

Which scheme is good for you?

To fix or float is the greatest dilemma that most home buyers face. A floating rate may appear cheaper and enticing. However, the borrower must remember that the rates may go up any time. Hence, he must set aside buffer funds to meet any sudden increase in EMIs. Many borrowers feel that lender is quick to pass on an increase in rates and hesitant to pass on the benefits of reduced rates. Talk to borrowers about their lenders while choosing one.

Pure fixed rates are offered by very few banks and the interest rates are quite high. Scheme like fixed for three years are increasingly becoming popular. At the end of three years, the borrower is automatically switched from fixed to floating scheme at the rate prevailing at that point of time.

You can benefit from the attributes of both fixed and floating loans in a hybrid loan. Here, the borrower locks a part of the loan under fixed and exposes the remaining to floating rate fluctuations.

What is EMI?

Equated monthly installment (EMI) can be broken down into two components – interest and principal. During the initial years of a loan repayment, it is mainly the interest payments that are being made while the principal amount is much less. Towards the end of the repayment tenure, a bulk of the repayment is made towards the principal component.

Larger the loan amount, higher the EMIs that borrowers have to repay month after month. Increasing the tenure of the loan can bring down your EMI