Making Home Loan Affordable for all [Union Budget 2019]

Date : 23-July,2019|Read: 5 mins

In a revolutionary move in the latest budget, Finance Minister Nirmala Seetharaman gave a boost to affordable housing. She announced an increase in tax exemption limit on interest paid on home loans bringing good news for homebuyers in India, especially from the smaller cities.

A borrower who opts for a bank loan has to pay interest to banks or any other financial institution. This interest rate is a marginal amount levied by lenders on the principal amount. The government made home loans attractive and EMIs cheaper by increasing the deduction limit of housing loans, thus making "housing for all" a living reality.

What is a home loan?

A home loan is called a good bank loan because it helps you acquire an asset like a house/flat or a plot of land for the construction of a house. It is the biggest loan amount that most people borrow and for the longest period, which is usually 15 years or more.

The total amount that one ends up paying by the time the loan ends is usually double the amount of what was taken.

Why should you take a home loan?

A question that you must ask yourself, before opting for a bank loan is should a house be rented or bought. Will you live in the house or rent it out? It is a wise move to buy a house to live in it.

If you are looking at it as an investment, then you must calculate the compounded annual home interest rates that the asset can give and consider the risk involved. Your repaying capacity will determine your total eligibility. The repayment capacity is calculated based on monthly disposable income/surplus income which is again based on monthly income/surplus less monthly expenses and other factors like spouse's monthly income, liabilities, assets, stability of income etc.

The bank always makes sure that you're able to repay the loan on time. If the monthly disposable income is higher, the higher will be the loan amount you will be eligible for. The bank makes an assumption that about 50% of your monthly disposable/surplus income is available for repayment. The tenure and home interest rate will also affect the loan amount. The upper age limit for home loan applicants could impact one's eligibility.

What is the maximum amount that can be borrowed?

10-20 percent of the home's purchase price is taken as a down payment. The rest of the amount which is 80-90% is financed by the lender. The total financed amount includes registration, transfer and stamp duties. To keep the home interest rates low, one should opt to borrow less amount of loan and make the maximum amount as down payment.

It is necessary to have a co-applicant who is the co-owner of the house.

Interest rates

Home loan rates can be fixed or flexible. For fixed home loans the interest rate is fixed for the entire home loan's tenure, while the interest rate does not remain fixed in the flexible home loan.

Documents required for home loan

  • Legal documents related to the purchase
  • Identity proof
  • Residence proof
  • Latest salary slip
  • Form 16 or Income tax returns (Business/self-employed)

During the disbursal stage, you may need to submit the allotment letter, encumberance certificate, photocopies of the title deed and agreement to be able to sell papers. The loan can be disbursed in full or instalments which shouldn't exceed three times.

What should you consider while going for a home loan?

  • Choose a lender who offers the lowest EMIs which will allow you to pay lesser amounts in repayments.
  • The lenders offering the longest tenure of repayment may not always be a good option. If you're not sure of repaying early without prepayment charges, then only opt for it.
  • Check if the cost of furnishing is covered by the lender.
  • Choose lenders offering daily or monthly reducing balance, which would be a better option than an annual reducing balance amount.

How will this help the homebuyer?

A home loan borrower will get an additional deduction of Rs 1.5 lakhs for home loans borrowed up to March 31st 2020. This implies for the purchase of affordable homes costing up to 45 lakhs. A person now buying an affordable home will get an increased interest deduction of up to Rs 3.5 lakhs.RBI has now become the regulatory authority for housing finance which will lead to easy regulation as all financing sectors would fall under one authority. This will also inspire fence sitters and first-time home buyers to make clear and quick decisions about buying property.

Here are some important points to note about the hike in home loan tax break:

  • Only individuals can avail the deduction. Co-operative societies, undivided Hindu families, companies or firms are not be eligible for the deduction.
  • First time home buyers will only benefit from this deduction.Homeowners who already own a house are not eligible for the deduction.
  • The upper cap on the price of the house is Rs 45 lakhs. This has been done to promote affordable housing and limit the benefits to the middle class. The loan must be availed from a bank or a government recognized housing finance company.
  • The carpet area of the property should not exceed 60 sqm / 645 sq ft (up from 30 sqm) in cities like Delhi-NCR, Bengaluru, Mumbai Metropolitan Region, Chennai, Kolkata and Hyderabad. For other cities or towns, the carpet area of a house should be a maximum of 90 sqm (968 sq ft).
  • The tax deduction can be availed of under the newly introduced Section 80EEA from FY 2019-20 (AY2020-21).
  • Both resident Indians and non-resident Indians (NRIs) can avail this deduction for a home loan.
Details of Bank Loans
Name of the bank Interest rate Processing fee Max tenure Lowest EMI Prepayment charges Age
United Bank of India 8.65% Upto 0.59%
Minimum Rs. 1,180 Maximum Rs. 11,800
30 years Rs. 780 per lakh Allowed with Nil charges for floating rate loans Min 21 and Max 60 years for Salaried
Min 21 and Max 65 years for Self Employed
State Bank of India 8.55 onwards 0.35% of the loan amount (Min. of Rs. 2,000 & Max. of Rs. 10,000) 30 years Rs. 772 per lakh Allowed with Nil charges for floating rate loans Min 18 and Max 70 years for Salaried
Min 18 and Max 70 years for Self Employed
Allahabad Bank 8.85 to 9.10% 0.40% of loan amount Maximum Rs. 50,000 5 to 20 years Rs. 890 per lakh Nil charges for floating rate loans 21 to 60 Years
Punjab National Bank 8.65% to 9.25%. 0.50% of loan amount Minimum Rs. 20,000 Maximum Rs. 50,000 5 to 30 years Rs. 780 per lakh Allowed with Nil charges for floating rate loans Min 21 and Max 60 years for Salaried
Min 21 and Max 65 years for Self Employed
Bank Of Baroda 8.65% onwards Upto 0.50%
Minimum Rs. 7,500 Maximum Rs. 20,000
30 years Rs. 780 per lakh Allowed with Nil charges for floating rate loans Min 21 and Max 60 years for Salaried
Min 21 and Max 65 years for Self Employed
Syndicate Bank 8.75% onwards Upto 0.13%
Minimum Rs. 500 Maximum Rs. 5,000
30 years Rs. 787 per lakh Allowed with Nil charges for floating rate loans Min 21 and Max 60 years for Salaried
Min 21 and Max 65 years for Self Employed
Canara Bank 8.75% to 8.95% 0.50% of loan amount Minimum Rs. 1,500 Maximum Rs. 10,000 5 to 30 years. Rs. 787 per lakh Allowed with Nil charges for floating rate loans

21 and 55 years.

HDFC 8.60% Upto 0.50%
Minimum Rs. 3,000 Maximum Rs. 10,000
30 years Rs. 776 per lakh Allowed with Nil charges for floating rate loans Min 24 and Max 60 years for Salaried
Min 24 and Max 65 years for Self Employed
Oriental Bank of Commerce 8.70% to 8.80%. 0.50% of loan amount Maximum Rs. 20,000 5 to 25 years. Rs. 819 per lakh Allowed with Nil charges for floating rate loans 18 and 60 years for salaried and self employed

The Union Budget has ushered in a golden period for home buyers, especially for those who have been contemplating to buy affordable homes. Since the recent budget gave a much-needed relief to income tax payers with a rebate in income tax and increase in standard deduction, the housing sector will see a big boost.

Why not take the first step and avail of a home loan to give wings to your dreams? This is the best time to invest in a home.
We at homes247 with years of experience under our sleeve and a customer friendly approach would be glad to assist you in knowing about which home loan is best for you.

We assure you that all through your journey of hunting for a dream home, we'd be there by your side.

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