What is a Home loan: 5 important types and benefits of home loan

What is a Home loan

What is a home loan – A home loan is a form of secured loan that is obtained by financial institutions such as banks. The property for which the home loan is obtained is offered as collateral for banks. Various types of home loans are available in the financial markets.

When the total amount of the home loan is paid to the bank, the bank transfers the collateral to the individual, and the property belongs to the individual. If the borrower is unable to pay the loan about, and the borrower is defaulting, in this case, the institution will use the collateral to recover the loaned money. The lender has legal rights to recover their loaned money.

Various types of home loans related to home loans

There are several types of home loans and loans related to them.

Home purchase loan:

Various institutions provide loans for purchasing a house. One can purchase a house within their budget by securing a home-purchasing loan.

Home construction loan:

If you are planning to construct a home you can secure a home construction loan from various financial institutions.

Land purchase loan:

If you are willing to purchase a piece of land, you can avail land purchase loan.

Home Improvement Loan: 

This type of loan can be used for renovation and improvement purposes Of your home.

These are the 5 important types of home loans.

Home repair loan:

This type of loan is secured for repairing and restoration purposes of your home.

Benefits of home loan

Tax advantages

The foremost benefit of a home loan is the deduction in income tax. One can claim income tax reduction on the interest and principal repayments. There are various provisions under section 80 of the law that will allow you to get rebates and deductions in the income tax.

Lower interest rates

The home loan interest rate is generally lower than other types of home loans.

Due diligence of property

Banks conduct a thorough check of the property from a legal perspective and check all the documents related to the property before providing a home loan to an individual. This due diligence check from the bank approved whether the property was legal or illegal and helped the borrower in knowing that their property was safe to purchase.

The long tenure of repayment

Home loans have long repayment tenure as long as 20- 30 years. Other kinds have a lesser amount of tenure to repay the loan amount.

No penalty on repayment

If you are unable to pay a required amount of money in a given period, the banks do not apply penalties and you can pay the required amount in a lump sum way when you have the money. Suppose you are unable to pay some amount of loan in six months, you can pay the amount in a lump sum amount after six months.

Transfer of balance facility

A home loan borrower can transfer the home loan from one lender to another. This facility enables an individual to take home loans easily, and if they are unable to repay the loaned amount, they can transfer it to someone willing to purchase the property, and they will pay the loaned amount.

These are the benefits of a home loan as shown above.

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