A number of Sections under the Income Tax Act, 1991 falls under the category where one can claim deductions. For instance, the deduction claimed under the heads of investments or expenses that are incurred during that particular financial year.
These home loan tax deductions help in decreasing the tax liability of an individual and by reducing their taxable income. But you must pay attention to the lock-in periods to such deductions. Otherwise, the amount of deduction claimed can further be revoked.
Let’s take a look at what are the home loan tax deductions? What are the heads under which one can claim such deductions? What are the lock-in periods?
Read- When Does Your Home Loan Tax Deduction Get Revoked
Owning a house is not just a mere dream now. The Government is providing various opportunities and facilities to help fulfill the dreams of individuals to buy their own house. That is a home loan.
While an individual takes a home loan, he/she gets additional tax deduction benefit from the Government. These facilities are provided by the Government to motivate individuals to purchase a house.
Individuals must have a thorough knowledge of home loan and the deductions attached with it and make full use of it. What are the deductions available under the Income Tax Act, 1961? What are the different heads under which deductions can be claimed in relation to the home loan taken?
Also Read:- Tax Benefit on Home Loan – Tips to Reduce Tax Liability
Banks offer a facility to avail a loan in addition to the borrower’s existing Home Loan. These are known as top-up loans. Bank representatives by their smooth words influence the borrowers to avail these offers.
But there are traps attached to these offers that the borrower should be aware of. Borrowers should not avail a loan top-up offer without taking into consideration the aftermaths of the same and should not get carried away by an offer that sounds attractive without any analysis.
Bank representatives call their prospective customers with lucrative offers and with better interest rates. The borrower may feel that these are a genuine and viable financial option. But the borrower must thoroughly examine these offers as sometimes the cost may exceed the savings of the borrower that any other bank offers him/her.
Do a thorough analysis before taking up top-up loans without it the customer will further
Read:- TOP-UP LOAN: BEWARE OF THESE TRAPS
increase the amount of financial pressure upon him/her without any reasonable ground.
- Many of us remain confused among the types of loans that are available in the market regarding their terms and conditions, interest rates, perks, etc.
- The most common type of loans among which the people often get confused are Home Loan and Loan Against Property.
- A home loan is taken to purchase a home or for the construction of a house which a LAP is taken to meet the fund requirements.
- The home or property do not belong to the applicant at the time of loan application while the applicant owns the property in case of LAP.
- The purchased home is considered as security means in case of the home loan while for LAP the loan is given by keeping the property as collateral.
- In a home loan around 90% of the total value of the house is given as loan while in LAP 60% to 70% of the total value of the property is given as a loan.
Related:-How Loan Against Property Is Different From Home Loan
You need to be very cautious and aware when you plan to opt for a home loan to convert your dream into a reality as it is a cost for you that you have to bear in order to get a house. A home loan is considered as one of the best loans to build up your asset using a liability. Before applying for it one needs to be very careful and aware of all the hidden or extra charges associated with it apart from the rate of interest on your home loan.
Buying a property is something that all of us want to have at some point in our lives, in that case, applying for a home loan is the best way. While availing this loan, do not forget to insure your home loan that will help increase your contingency reserve to include enough funds to pay a maximum of three EMIs pertaining to your loan in case of financial emergency. Similarly, if you are worried about your finances and do not know where to start, you can seek guidance from any online loan aggregators who guide first time home buyers and also suggest which is the best loan for them according to their eligibility.
Additional Reading:-Charges Associated with Home Loan that you must know
A decision to buy a dream house of your own is very important and a life-altering one. Before approaching to a lender, not only do you have to be adequately prepared, in terms of finances, but apart from this, you have to ensure that the conditions are correct for your home loan at Low-interest rates application to go through smoothly. Some of the factors as discussed could become an obstacle if not taken care of within time.
When you apply for a home loan, do not forget to check your home loan eligibility by using a home loan eligibility calculator that works on three parameters- Required Loan Amount, Rate of Interest and Loan Tenure. Home loan is something that you are getting into a long-term financial commitment with your eligible lender. Prior to getting a home loan, put in your best efforts and do your best to prepare in terms of getting your papers in order, getting the funds ready for the down payment. Besides this, your lender may also put you through a rigorous credit score or CIBIL Score assessment process to ensure that lending to you entails the minimum amount of risk.
So, do not forget to check your home loan eligibility before applying for a home loan.
Additional Reading:- Factors that influence your Eligibility for Taking a Home Loan
A home loan is an amount borrowed by individuals from banks or other financial institutions for construction, purchase or repair of a residential property. Lenders give the loan for a fixed period of time and charge interest on the amount borrowed, which has to be paid by the borrowers along with the principal amount. The interest rate on the loan can be calculated in two different ways – Flat interest rate and reducing balance interest rate. A flat interest rate means that the interest component on the loan will remain the same throughout the tenure. The interest will be calculated on the entire principal amount until the tenure comes to an end. It is calculated using the following formula:
Interest Payable per installment = (Original Loan Amount * No. of Years * Interest Rate p.a.)/ Number of installments.
The interest payable is generally more when it is calculated using the flat interest rate as compared to reducing balance interest rate. A flat interest rate is a gimmick by lenders to attract customers into taking a loan without making them understand about the entire scheme. Consumers who are in immediate need of money fall for such schemes and end up paying higher amounts as interest. Hence, always ask the lender about the interest rate calculation method before signing off the final loan agreement. You can also spend a little time in the calculation of the total interest payable and choose accordingly. Also, always take into account costs like processing fees when you are comparing loans from lenders.