What is a home loan?

When to opt for a home loan?

Many people think that when there is an option of renting a house why to take a large liability and buy a house. The reason for that is the major disadvantage involved in the process of renting a house. Here, a person pays a monthly rent and even after having paid rent for a number of years no ownership comes to him/her.On the other hand, there might be an equal amount paid as an equated monthly instalment on a Housing loans but the difference here is that the person is the owner of the property. The real benefit from the house comes in the form of capital appreciation that is witnessed here. House prices in India have risen quite sharply in the past and it is expected that they will keep rising in areas that have development as well as good facilities.This appreciation in the value of the property makes a compelling case for buying a house with a loan. The individuals are actually leveraging the amount that they have with themselves by taking a loan and financing a larger cost house. The benefit of the appreciation in the value is available for the entire amount even though it might take years for the person to pay off the loan and finance the complete house.

Home loan tax implications

Availing a home loan is not just a viable option for owning a home, but also brings with it attractive tax benefits.Under section 80C of the Income Tax Act, investments in specified instruments up to Rs 1 lakh annually are deductible from an individual’s taxable income. Also included under this section are principal repayments on a home loan. So in case you take a home loan, any payments you make towards repayment of the principal is deducted from your taxable income up to an amount of Rs 1 lakh.Not just the principal, but also the interest payments on a home loan have tax benefits. Your interest payments are considered as an expense under the head ‘Income from house property’ and are deductible up to an amount of Rs 1.5 lakh per annum.Joint applicants, who are also joint owners, are eligible for tax benefits in the proportion of their share in the loan.

Documentation of a home loan will also include various components related to the purchase of a property. This includes original copy of the loan agreement along with the copies of documents showing that there is a clear title to the property plus documents indicating that the transfer of rights in the property has been completed properly.