Importance of a home loan agreement

All the terms and conditions related to a home loan are listed in a home loan agreement and that has to be signed by the borrower, which means that the borrower has agreed to mentioned conditions. Despite being of such immense importance, it is taken just as a formality by most of the borrowers.

The main reason behind this neglect is the bulky size and the language that is used is the document, it prompts the borrower to sign it quickly and conclude the loan formalities as soon as possible but this can not be an excuse because doing so can cause a harm to the borrower in many ways.

As there are a lot of lenders available in the market, it has fueled the competition among them to lure customer. For the reason they come up with new schemes and only the highlights are made available to the customers, however there are a lot of terms and conditions applicable with it about which the customer is oblivion.

A lot of people approach the lender and intoxicated by the advertisements they want to borrow the scheme as soon as possible without making any further enquiry and in the mean time they also sign the loan agreement as well which makes the lender the ultimate authority; by the time the borrower gets to know what blunder he has made it is already too late.

Nothing like this would have happened if the borrower would have read the document carefully. For instance, if a person has borrowed a loan under fixed rate scheme which promises him loan at minimum possible rates. Most of the lenders now mention a clause in the agreement which allows them to revise the rates after a certain period of time, about which the lender obviously will be unaware about if he has not read the document carefully.

Not only these but there are a lot of other details about the defaults and various clauses related to the home loan which makes it really important to read the loan agreement carefully.

Get your home loan insured

Home loan insurance is as important as a home loan itself, most of the people are concerned about the home loan and once they succeed in borrowing they get relaxed and their home loan is what they bother about but a home loan insurance is also an essential part of a home loan.

In case of demise of the borrower of a home loan it becomes the responsibility of the family to repay the loan and in most of the cases the families are found jostling because of the double whammy, basically the family members are left to face the consequences and most of the times they have to face foreclosure.

Home loan insurance provides the security from the threats posed by any such situation, if a person has got his home loan insured then the insurer is responsible to repay the remaining home loan amount in case of beneficiary’s demise.

There are few variants available of home loan insurance schemes out of which a person can choose from, most of the lenders repays the pending loan amount but a scheme offered by ICICI Lombard covers a certain amount and when required the insurer pays the pending loan amount and the remaining amount is paid to the family.

Apart from security that this security provides the beneficiary can avail tax benefits as it is categorized under life insurance and under section 80C income tax deductions can be claimed; but this facility lapses in case the borrower has clubbed both Insurance Premium with the monthly installments.

How you can customize your home loan?

One of the fruits that the evolution in the housing loan sector has yielded for the borrowers is choice. A person has a fairly good amount of options available for the home loans from which he can choose. Several other sub categories have also come into existence like the home improvement loans and reverse mortgage loans.

The situation and the requirement of the borrowers can very form each other in infinite ways and so it was obvious that only one particular loan scheme can never serve the purpose for each one of them, hence a lot of changes were brought around the home loans and have actually proved to be efficient to lure more customers.

Now a person has a choice to tailor his loan scheme in the way he wishes to, there are of course some restrictions but still it is a fair enough deal. A person knows his situation the best and he should be the one to make a decision on the features of the loan and so by considering the future prospects and his requirements.

After one has borrowed the loan, the most critical part repayment still remains and in this category there are a lot of options available. Like for a person in the initial stage of career can opt for a scheme in which the amount of the monthly installments is lower in the early part of the career and as the career of the borrower improves the amount increases eventually.

Also for the older people that are nearing their retiring age they can make high payments in the initial loan period, so that they do not have to bother much about the repayments in the later stage of the loan where they would also be left with a few years at their workplace.

Each lender has something new to offer and a borrower just need to search for the right palace where he can get what he is looking for.

Tax benefits on your home loan

A person who belongs to service class is always terrorized by the by the income tax that he has to pay, as quite a huge part of what he earns, he has to pay it is a income tax and which is mandatory. So, people are always looking for ways in which they can minimize the amount they require to pay as income tax.

People who are planning to borrow a home loan may also be worried about would they be able to cope up with both income tax as well as home loan that they are planning to borrow. So, here is good news for such people. A person who has borrowed home loans is entitled to avail tax benefits on the interest paid up to Rs. 1, 50,000 for a financial year.

If a home loan is jointly borrowed then both the borrowers are entitled to avail separate tax benefits, resulting in an increase in the amount of tax deductions but the deductions can be availed only when the payment was made, if a borrower was unable to make payment then he can not avail tax benefits on the same.

In case the home loan was borrowed jointly then the tax benefits are to be shared in the same proportion as they share the in home loan. The tax benefits are still applicable if the borrower refinances his loan for the first time but if the borrower wants to borrow another loan to repay his loan for the third time then he is not eligible to enjoy tax benefits.

In order to claim the tax benefits the borrower requires to present the certificate clearly showing split between the principal and the interest rate in the EMIs paid during the year issued by the housing loan company.

What makes home loan expensive?

People borrowing a home loan are always looking for a cheap home loan scheme, without exactly having an idea about what really makes home loan expensive or cheap, so before starting with any things it is important for a borrower to understand more about the factors that can have an impact on the total cost of a loan and what are the necessary expenses which are needed to be taken care of.

When a person applies for a home loan he is required to pay processing fees, which is non-refundable, its extent can vary from bank to bank but most of the bank levies 0.50% of the total loan amount as processing fees. There are various other charges also which a borrower will require to pay but the processing fee is the heftiest one out of them.

The most significant thing in a home loan which affects the cost of home loan most is the interest rate applicable on it. The interest rate offered by the banks can differ as there are a lot of schemes that they offer and out of them they can choose the loan scheme with minimum interest rate or if he has some specific requirements then he must look to get interest rate as low as possible in that category.

However, sometimes a lender can differentiate among various applicants and can offer different interest rates on the same loan scheme. An applicant who fits in well in the eligibility criteria of a lender and most importantly if he possesses a good credit score can avail best interest rate on his loan as compared to others. So, in order to have a lower cost of a loan, it is necessary for the applicant to have a high credit score.