What type of home loan is best suitable for your mortgage needs?

Home loan is one of the most affordable financing options available to you from banks. You can borrow high ticket secured loans at 6.65-7% p.a for purpose of purchasing or constructing a residential property. Personal loans, business loans and other forms of unsecured loans are however available at higher rate of interest, starting from 10 to 11%.

Apart from loan rate and amount, you also get longer tenor and repayment flexibility with home loans. Thus, whether you need funds for home purchase, home repair, or meeting out any of the related expenses it is recommended to use home loan or home loan top ups for the purpose. There are various types of home loan options available to cater a wide range of customers.

By opting for a suitable loan product you can save substantial amount in your pocket. So, let’s take a quick rundown on various types of home loans in India.

Regular Home Purchase Loan
This is the basic home loan product which is available for salaried as well as self employed professionals. All leading banks and NBFCs such as SBI, ICICI, Axis Bank, HDFC ltd, Tata Capital Housing Finance, Bajaj Finserv offer home loan for purchase of a residential plot, apartment or villa.

These loans are offered for 75% to 90 % value of the property basis the loan amount. The rate of interest is most attractive across the products. You can opt for tenor of 20-30 years and enjoy complete repayment flexibility with floating rate home loans. Also, you can add a co-applicant and improve home loan eligibility. There is no prepayment or foreclosure charge on home loans.

The eligibility criteria vary as per loan amount, property location and your profile.

Home improvement loan

You can apply for home improvement loan along with your ongoing home loan or as a fresh loan against your pre-owned property. The proceeds from a secured home improvement loan can be used for a range of home improvement expenses such as repair work, home extension, renovation or furnishing. The bank will however ask for expense estimate before sanctioning the loan amount. Just like home loans, you can opt for 80-90% of the expense estimate as home improvement loan. The rate of interest will be approximately 1% higher than regular home loan. The existing customers with good repayment track record can get as good as the eligible home loan rate for their profile.

Plot purchase & construction loan

Plot loan is a home loan product for purchase of a residential plot. The loan amount is offered as LTV% of the plot cost. You can apply for plot purchase loan or plot purchase & construction loan as per your needs. To apply for funds for construction of plot, you are required to provide estimate of construction cost. The disbursement is released in phases according to construction stages. The construction needs to be completed within the capped tenure.

The application process initiates just like a home loan. However, the loan tenure is shorter than a home loan and rate of interest will also vary.

Home conversion loan

Existing home loan customers can opt for home conversion loan and switch their fixed home loans or PLR/ MCLR based home loans to repo linked home loans on the payment of a conversion fee. The conversion fee will vary as per the lender. Mostly it will be 0.5% of the balance amount + GST. The conversion of home loan helps to reset your loan agreement. You also get an option to top up loan, add tenure or reduce principal amount all along. Please note that you apply for conversion loan with your existing lender. SBI Home Loan conversion is currently being offered at a flat nominal fee.

Home bridge loan

Bridge loan is one of the most prudent products for home buyers. These loans are tailored for individual borrowers who want to sell their existing home and buy a new home. The loan product offers a short term bridge loan to meet the financial gap that is built while transacting the purchase of a new home and selling the existing house. 

Unlike a home loan, bridge loan is offered at a higher rate of interest for approximately one year. The loan is backed by collateral and has an option to convert it into a mortgage loan if the sale of the old property doesn’t materialise in time.

Home loan balance transfer

Home Loan balance transfer option allows you to refinance your existing home loan at a lower rate of interest from a new lender. The new lender takes over the balance home loan amount and repays your previous loan before starting a new loan agreement. You can opt for top up or reduce the principal balance at the time of refinancing your home loan. 

Home Loan Overdraft

Opting for Home Loan with overdraft facility allows you to enjoy greater repayment flexibility and interest saving. Though rate of interest is slightly higher than a regular home loan, yet the benefits of OD Home Loan make it a wonderful product. Under this product, your home loan account is linked to a Savings Account wherein you can park your surplus amount. The home loan principal is adjusted by reducing account balance and thus EMI calculation is based on the balance amount. This saves enough on interest pay out each week. Besides you also enjoy complete withdrawal liquidity on your amount.

Reverse mortgage loan

Reverse mortgage works in reverse of a home loan. The lender here offers a monthly income to the owner of the house. This product is apt for senior citizens who have a self-acquired or self-occupied home in India and do not have a monthly income to support. The bank takes over the property after the death of the owner & their spouse. The legal heirs get choice to redeem the property on payment of loan amount.  The product is less popular in India as compared to developed countries.

Basis your needs, you should choose the product and apply for a suitable home loan. This will ensure the value of the mortgage product.

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