8 stupid' questions about home loans

September 28 is Ask A Stupid Question Day. We believe there is no such thing as a stupid question. When it comes to the matter of money management, all questions must be asked. After all, your prosperity and financial security depends on you making informed choices. Taking a home loan to fund the purchase of your house is one of the biggest financial decisions. Let's look at 8 such questions.

Do my age, occupation matter?
All lenders apply their own unique terms and conditions on their loans. Age eligibility may be part of this. For example, one well-known bank needs the loan applicant to be between the ages of 18 and 70. Age itself may have no impact on your interest rate. However, your occupation may sway your loan rate. Often, salaried applicants may get a slightly lower rate of interest than self-employed applicants. These aren’t the only determinants of your interest rate. There are others, such as your credit score, the loan size, your gender, your relationship with the bank, etc.

How much of my property cost will the loan fund?
You can’t borrow 100 per cent of your property purchase cost. A typical property purchase entails several costs. Let’s say your house costs Rs 100. Registration and stamp duty will cost Rs 7. If it’s an under-construction property, add another 12 per cent for GST. Beyond these, there may be costs towards furnishing, brokerage, and repairs. Typically, banks will lend between 70-90 per cent of the registered value of the property in most cases.

What are the tax benefits of taking a home loan?
Taking a home loan is one of the most convenient ways of saving income tax. Your principal payments (both via EMIs or part payments) allow you to claim a tax deduction of up to Rs 1.5 lakh per year under Section 80C. It means that you don’t need any additional tax-savers under Section 80C. Additionally, interest paid up to Rs 2 lakh per annum can be claimed as tax deductions under Section 24B.

Do banks offer me the amount that i ask for?
Yes and no. It all depends on how much you are eligible to borrow. Based on your income and outstanding debt, the banks will calculate your maximum loan eligibility. For example, let’s say your income is Rs 50,000 per month and a bank you apply to decides your loan eligibility is Rs 25 lakh for a 20-year loan. You can only borrow up to your eligibility, subject to the property valuation.

Who can be the co-applicant?
Only a relative can be a co-applicant on your home loan. Co-borrowing with your spouse is the ideal arrangement. Parents can co-borrow with children under certain conditions — such as the child should not be a married daughter. It’s usually difficult for siblings to be co-borrowers; However, the same may be allowed if some conditions are met. For example, if two brothers borrow, the lender may insist that both be the co-owners of the property.

What happens if i default?
It’s your moral, legal, and financial obligation to repay the amount you borrow. If you miss your EMIs, your loan may be classified as a Non Performing Asset (NPA) by the bank as guided by the RBI’s norms. The long-term consequence of not paying your loan in full is that it will reflect in your credit report for the immediate future. This act of default will bring down your credit score, which will make it very hard for you to take another loan. Also, as dictated under Indian laws, your property will be possessed and auctioned by your lender to recover your dues. This scenario applies only when you’ve failed to pay your EMIs for several months.

What are the other charges besides the emi?
Your EMIs will be your biggest outgo towards your loan. However, there are several other, smaller charges — application fee, processing fee, administrative fee, legal fee, franking fee, etc. Check with your lender for the full list of charges. Also, late payment of EMIs or bounced cheques will attract penalties as per the lender's terms and conditions.

Can i transfer my loan to another bank?
You have the option of transferring your loan to another bank or lender offering you more attractive terms. For this, however, you may have to pay a transfer cost with your existing lender and processing fees at your new lender. Always weigh these costs against any potential interest and tax savings you will make by transferring your loan. If the costs are higher than savings (especially towards the end of a loan), it may be unnecessary to transfer. You may also want to transfer for something intangible, such as the quality of service.