Top 5 Different Types Of Home Loans
Having a home is considered a synonym for prosperity and status in India, which is why a lot of people are keen on purchasing their own residential property as soon as possible. However, a home could mean differently for people. For some it could be a flat or an apartment, for some others it could be a bungalow and for some, it could be just an extension of their parent’s house. Which is why lenders provide different types of home loans to cater to your needs.
Let us understand some of the major types of home loans.
Loan for a home purchase
Also called the basic home loan, this loan is for the purchase of a residential property, be it a flat or bungalow. You can repay the loan in equal installments throughout its tenure, which could go up to 30 years. Often, the lenders approve 80-90% of the house cost if you meet the home loan eligibility criteria. The interest rates could vary depending upon the existing market rates. At present, you can get a home loan for an interest rate between 7% and 12%, depending upon the financial institution you choose and your eligibility.
Loan for home construction
This home loan is offered by lenders to people who want to construct their own house on a plot of land. The process of application approval is somewhat different from the normal home loan. The lenders also take into account the cost of the property, which is the piece of land in this case, for deciding the eligibility. The lender decides the loan amount based on a rough estimate of the cost of the construction. The loan disbursement process of such loans could also be slightly different. The lender can disburse the whole amount in one go or as per the progress in the construction of the property. To include the cost of a plot in the loan amount, you need to have purchased it within one year of applying for the home construction loan.
Home loan for extension/improvement
Not only could buying a house be expensive, sometimes extension or remodeling or repairing one can also drain your savings. For example, you could want to remodel your house to change the interiors or add a new room but could fall short of funds. Also, there are various expenses related to house improvement. For example, painting, construction of overhead storage tanks, adding wooden flooring, adding tiles to bathroom, electrical rewiring, among others also require significant funds. For all such small and big expenses required in the house, you can avail a home improvement or home extension loan. The amount could vary from bank to bank and lenders can either offer separate loans for improvement and extension or club both.
Bridge loans are beneficial for people who want to purchase a new house but do not have enough funds at present, as their existing property is yet to be sold. Bridge loans are small-term loans spanning over one to two years that you can take to buy a new property while your existing property is put on sale. With this bridge loan you can buy the new property you wish to purchase, and then pay off the loan when your existing house is sold. Usually, lenders mortgage the new property while approving this loan.
Balance transfer home loans
Home loans span over many years. Sometimes it might happen that you got the loan at a higher interest rate but now different lenders are offering a home loan at a lower rate. In such a situation, you can take a balance transfer loan. In this type of loan, you can switch to a home loan with a different lender who is charging a lower interest. This is called a balance transfer. However, it is important to consider the total cost incurred in a balance transfer before making the switch as there might be additional fees levied by the new lender.
There are different home loans in India for varying needs. And as the repayment of a home loan can add a burden to your monthly finances, you must review all the types of home loans carefully. Availing the right type of home loan would help you reduce the excessive formalities and could reduce your applicable interest rate too. Therefore, identify your needs and apply for the right kind of home loan today.