In these days it is rare that an individual is offered 100% value of the property while taking a home loan. Rather the maximum loan provided these days is around 85% of the value of the property. The rest 15% of the value of the purchase is to be fulfilled by the borrower himself.

Vital points about LTV

Firstly LTV depends upon the lender’s valuation of the home and not upon the valuation done by the borrower. This is even more important if an individual is buying a home in the resale market. As there are no objective barometer of what the value of the home should be.

For example an individual might be buying a house for Rs 40 lakhs but the lender’s surveyor’s might value for Rs 30 lakhs only so the bank will provide a loan of around Rs 32 lakh to the individual while the individual will have to balance the rest of the 8 lakhs on his own.

Secondly, in case the lender sees an Individual as a high-risk borrower which means that they do not have full comfort in his ability to repay the loan, they might reduces the LTV and demand that the individual pays higher amount of the value of the house.

Finally, in case an individual wants a high LTV and the lender agrees to give it to him, it’s likely that he will be expected to pay a higher area of interest and a result higher loan EMI.

LTV is one way the lender is going to see the risk of lending to an individual.

The monthly home loan installment which you pay back to your lender consists of two components. One is part repayment of the original loan and the other one is interest on the loan. The former is also known as the principal repayment. Both part and interest repayment entitle you to tax benefits.

Section 80 C allows the deduction for principal repayment and the amount which gets deducted is Rs. 1 lakh per annum. However if you take this whole deduction towards principal repayment, then you wont be eligible for other 80C options like an insurance policy or ELSS. The balance amount can be spread across other 80C options only if you take a part deduction towards the principal repayment.

Section 24(b) allows the deduction for annual interest payments under the following scenarios:

• The deduction for the annual interest payment shall be counted from the year in which the property was purchased or constructed.

The interest paid from the date of the loan and up to the beginning of the financial year in which property is purchased or construction is completed shall be allowed 1/5th in next successive five years along with the interest repayment of that particular financial year

Key points on taxation:

• In case if you don’t have the possession of the house then there is no tax benefit available.
• If two people have taken a home loan jointly then both of them can enjoy the tax benefit in the ratio of the EMI payment that they are making.
• In case if you are staying in a rented house then you can reap the benefit of home loan tax benefits and HRA benefits.
• However this tax benefit is not available for loan against existing property or loan taken to purchase land.

An individual can choose a repayment period of 12 months to 300 months (1 year to 25 years) for the repayment of his loans. A stipulated amount is fixed which is to be paid every month to the lender. This payment is called EMI, Equated Monthly Installment.

EMI is a fixed amount and remains constant unless an individual changes the tenure of the length of the loan. However, in the case of home loan interest and principal component of the EMI, it can change on a monthly basis.

The fees associated with home loans

There are fees to be paid before the loan is disbursed to an individual, as well as during the life of the home loan.

Before the disbursal

• Processing fee: while an individual submits an application form, he will be asked to pay a cheque of the home loan processing fee by most lenders. This fee is non-refundable in most of cases. The fee amounts to Rs 5000.
• Legal and technical charge: many lenders also recover the costs that they spend for legal and technical verification of the property by the person who is taking loan. These are known as legal and technical charges.
• Stamp Duty: On the purchase of a house you have to pay the stamp duty to the Government. Many banks also recover the stamp duty paid on the registration of the loan agreement.

Post disbursal

• Payment and Foreclosure Charges: It is the penalty paid by the borrower for making extra payment before the repayment schedule. This is waived by most of the lenders. While foreclosure charges are levied while an individual repay the entire amount of the home loan before the actual tenure. In these days banks charge this amount only when an individual transfers home loan balance to another home loan lender and not when foreclosing with his own funds.
• Duplicate Statement Charges: the lender sends a settlement to the borrower every year giving details of the money that has been paid to him towards the home loan. The amount is broken into interest paid and principal repayments. This is done for an individual’s annual tax filing purpose. The lender might charge an individual if he loses the settlement.  A settlement is send by the lender giving details of the amount of money that has been paid to him by you towards the home loan every year.

When an individual buys or constructs a home or makes improvements in a residential property, he can apply for a loan from banks or registered housing finance companies. An individual’s home loan is secured against the property that he buys. In case if he fails to repay the loan the lending bank will have the right to take possession of the home.

1. The total loan received by the lender is the principal amount.
2. The cost of loan that an individual pays to the lender is known as interest rate.

Before giving you the loan, the lender considers various points based on which, he gives you the loan. A few important points include your income, your loan repayment capacity and the house property you wish to purchase.

As a borrower, you have the option to choose the type of interest rate that you want to pay. There are two types of interest rates:

1. Fixed rate: This is a type of interest rate in which the interest rate remains fixed during the life of the loan.
2. Floating rate: This is a type of interest rate in which the interest rate floats or changes depending upon the market rates.

Salient features of home loans

Some salient features of home loans are as follows:

1. A loan can be taken for builder flats, under construction properties, and residential plot with construction due to start.
2. A loan can be taken by a salaries person, self employed and Non-Resident Indians (NRIs).
3. It is to be paid in easy Equated Monthly Installments (EMI).
4. The repayment options are flexible. As in an individual can do the payment ranging from 12 months to 300 months (1 year to 25 years).
5. Loan can also be transferred if you want to change your lender.
6. In case if you want to pay more of your loan then pre-payment facility is also available.

1. To increase the eligibility of your loan, combine your income with that of your spouse, children or parents.
2. Request the lender for preliminary check on the property before paying the loan processing fee.
3. Always negotiate as the first home loan interest rate quoted is never the final rate.
4. Buy loan protector life insurance to ensure that your family can use the house in case something untoward happen to you.
5. Immediate disbursement get best rates by talking to home loan providers when you are close to finalizing your property.

Why do you  give the lender a security when you take a loan to buy a house or a car? Taxsavers brings to you answer of such and many more questionS related to secured home loan:

What does a secured loan mean?

If you give a security or collateral to the lender while taking a loan it is known as a secured loan. For example, if you buy a house or a car, you give the lender a right over the house or the car till the time you fully pay the loan amount to the lender. In this way the lender is protected in case if you are unable to repay the loan.

Secured and an unsecured loan

• Collateral: In case of a secured loan the borrower has to provide a collateral or security such as a house however there is no collateral required in an unsecured loan.
• Loan amount: You can actually get a higher amount of loan by offering a security to the lender than in an unsecured loan.
• Rate of Interest: The lender feels somewhat protected since you are required to provide a security to get the loan. Therefore the advantage of secured loans is that, they charge lower rate of interest than unsecured loans.
• Down Payment: While in the case of a secured loan such as car loans or home loans, you will usually be required to pay some part of the purchase price through your own means. Generally this amount is a minimum of 10% of the purchase price. There is no such condition attached with an unsecured loan.

Can everyone get an assured loan?

A lender first assesses the lenders loan repayment capacity and only then gives you the loan. So if practically speaking everyone can get a loan However, it also depends on various subjective criteria. While at times your loan may also get rejected, if it has collateral. For instance, if you have a bad credit history the lender might feel secured enough about the repayment and refuse your application for a home loan.

What are the tips to be kept in mind while taking a loan?

• Complete ownership of the asset: you will receive full ownership of the asset which you offered as security for the loan only when the complete loan amount is paid back to the bank.
• Documentation: while signing any loan agreement, it’s necessary to go through the paper work thoroughly. Also when you offer as asset to the lender, it’s very necessary to understand the right terms and conditions which will affect your access or ownership of the asset that you put up as security.
• Keep a track record of the repayments: It’s always better to pay the EMI on time to avoid any disruption or administrative problems.