Importance of housing finance loan
In today’s date, buying a house isn’t an easy task. Additionally, it is also one of the most substantial and financial transactions in one’s life. Housing finance is way more than choosing the right property as it is all about mapping out your expenses in a way that won’t disturb your day to day living expenses.
Besides an excellent investment, having a house is a perfect way for people to enjoy a comfortable and safe life. It has become more complicated than ever for people to buy a home thanks to the ever-increasing real estate prices.
People have no option but to burn a sizable hole in their pockets when it comes to buying a house. You don’t need to stress at all as home loans and housing finance have emerged to combat this problem and are continually developing to help the vast masses of the country fulfill their dreams and buy their house.
What is housing finance loan?
As the name suggests, housing finance can also be termed as a home loan or mortgage that is offered by a financial institution, including the bank, in return for the security of the property that you are using the finance to buy. Ideally, a housing loan can be of any term from 25 years to 30 years featuring regular monthly EMIs that are designed to pay off the loan over a contracted period. The lender has the right to sell off the secured property to retain the value of the loan if one fails to repay the amount.
Types of home loan:
- Floating rate home loan- Under this type of loan, the interest rate isn’t mentioned and can either rise or fall during the term of the home loan. Ideally, this is either in response to the movements in the official cash rate, or it might be a decision by the lender. The main benefit of this type of loan is that it offers flexibility. It means that while one has to meet the minimum set monthly repayment, you can also pay more if it is feasible. Thus you can sell the property and move out without extra charges that would apply to the fixed-rate home loan.
- Fixed-rate home loan- Under this type of home loan, the interest rate is fixed for a certain period, unlike floating rate home loans. The home loan is entirely opposite the floating rate plan. The best part about this type of loan is that you get an idea about the repayment over the specified period as the interest rate is guaranteed to not waver over the fixed term. Thus it would be great if you read about the cost penalties before buying this loan.
- Split home loan- Under this type of loan, you can get an option to divide your loan amount into two parts, including variable interest and fixed interest. Such loans are perfect to buy in volatile markets as you can take advantage of rate cuts with a flexible component.
What costs are included?
- Down payment- It is the amount that one pays upfront and is ideally 20% of the property’s cost. Above all, if your credit score is right, then the lender can put it down more.
- Principal- The amount that the lender gives as a loan.
- Interest- It is the amount that it would be charged for borrowing the money. It mainly depends on the type of loan you choose.
- Insurance- There are various types of insurance that come along with being a homeowner, one of which is home insurance. It insures your home against any damage or loss that might occur due to theft, fire, or any hazard.
Benefits of taking a home loan:
- Tenure- One of the best parts of having a home loan is the long repayment tenure that a borrower can avail. It also allows borrowers to reduce the EMI installments by extending their term.
- Capital appreciation- Many of us have seen the property prices boom over the past few years, the excellent capital appreciation is a convincing argument for taking a home loan. Hence, rents are keeping up with inflation that makes owning a home one of the most important investments that can protect you from inflation in the long run.
- Opportunity to get a better house- If you decide to choose a place by paying the entire amount at once, it is quite possible that you would be left with fewer options as the budget is limited. Furthermore, if you take a loan, then you choose a better house and decide to go a little beyond your account.
Importance of housing finance:
- Housing finance is known to create employment, both indirectly and directly.
- Industries, including cement, sanitary products, brick manufacturing, and glass industries, experience a huge demand due to house construction.
- Besides rural areas, rural housing also grows, which prevents the migration of laborers from rural areas to urban areas.
- Housing finance helps in creating more houses that result in building more infrastructure facilities, including electricity, roads, drinking water facilities, etc.
- Housing finance can also help in reducing congestion in urban areas as factories or industrial establishments create townships to provide shelter to laborers.
- There is a vertical expansion and re-building of dilapidated houses due to housing finance.
- Besides improving the housing facility, the housing finance will also reflect the culture of the country.
- Due to modern housing facilities non- conventional energy gets popularized, which is one of the best benefits of housing finance.
Thus while providing housing finance, the lender and borrower enter into an agreement under the transfer property ac, whereby the house is mortgaged. Until the loan is repaid, the borrower is the mortgagor, and he cannot sell the house to any third party.
The mortgage is lifted when the housing loan is repaid, and then the ownership of the house is transferred to the owner. The owner now gets a right to transfer or sell the property. Thus before applying for the loan, you should keep a check on one-time costs.