Home Loan Types – An Overview
Updated: June 13, 2022
With the real estate prices on the rise in India, many people looking to own a house find it essential to take out a home loan. Lenders now offer various types of home loans to cater to different needs, making it easier for people to achieve their dream of owning a residential property. Understanding the different types of home loans can help you make well-informed decisions. For example, you can choose whether you need a home construction loan for building a new house or a home extension loan for expanding an existing property.
Knowing about these different home loan types in India can help you choose the right loan for your needs and ensure a smooth path to homeownership.
Different Types of Home Loans
Choosing the most suitable home loan based on your preferences can streamline and improve your home loan application process. For this, you should be aware of the different home loan types in India offered by lenders.
Home Loan
A standard home loan is the most common type of loan used to purchase a home. It allows you to borrow money from a lender to buy a property, and you pay back the loan in monthly instalments. If you meet the eligibility requirements, the lender may approve a home loan for up to 80% to 90% of the property's cost.
Home Extension/Improvement Loan
For those who already have a home but wish to expand or renovate it, a home extension loan or home improvement loan can be very useful. A home extension loan is ideal for adding new rooms or floors to your existing property, while a home improvement loan is used for repairs and renovations. These home loan types in India ensure that you can upgrade your home even if you do not have adequate savings.
Home Loan Balance Transfer
If you are repaying an existing home loan but find a better interest rate or service with another lender, you can transfer a home loan balance. This allows you to switch your loan to a different lender, potentially saving money on interest rates. However, it is important to consider the actual savings, as the new lender might have additional costs like processing fees.
Home Construction Loan
If you currently possess a plot of land and wish to construct your ideal residence, you might want to explore a home construction loan. As opposed to a traditional home loan, where the lender issues a single payment, a home construction loan is typically distributed in stages according to the advancement of the construction project. The projected construction expenses typically determine the approved sum.
Loans for Land Purchase
One of the many types of home loans in India is loans for the purchase of land. This allows the buyer to purchase land and either save money to build a house later or keep the land as an investment. However, not all lenders offer this type of home loan. Please note that at the moment, this product is not offered by SMFG Grihashakti.
Bridged Loans
Bridges loans are short-term loans intended for current homeowners who wish to purchase a new home before selling their current one. This type of loan assists in financing the purchase of a new home while the existing property is on the market. Bridged loans usually require a bank mortgage on the new house and can be available for up to two years. Please note that at the moment, this product is not offered by SMFG Grihashakti.
NRI Home Loans
This type of home loan in India is specifically tailored for non-resident Indians. NRI home loans have distinct requirements and application processes. These loans assist NRIs in purchasing residential property in India, providing a means for those residing abroad to invest in real estate in their home country. Please note that at the moment, this product is not offered by SMFG Grihashakti.
Pradhan Mantri Awas Yojana (PMAY)
The Credit-Linked Subsidy Scheme (CLSS) within PMAY offers first-time homebuyers loans for purchasing a home at reduced interest rates, resulting in potential savings of up to INR 2.67 lakhs* on the loan. Furthermore, the scheme provides an extended loan repayment period of up to 20 years*, thereby enhancing the affordability of homeownership for qualified candidates.
*Subject to change. Please refer to the government’s website for accurate, up-to-date information.
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Conclusion
Understanding the different types of home loans in India is crucial for making informed decisions when purchasing or constructing a home. Each home loan type caters to different needs, from buying a new house to extending an existing property.
At SMFG Grihashakti, you can explore options such as home purchase loans, home construction loans, home extension loans, home improvement loans, and home loan balance transfers. Our interest rates are competitive and we offer home loans up to INR 1 crore* with a flexible repayment tenure of up to 30 years*. Estimate your monthly payments with our free home loan EMI calculator and apply today with a 100% online application process.
FAQs on Types of Home Loan in India
How do special programs like first-time homebuyer loans or renovation loans benefit me compared to traditional mortgage options?
In India, first-time buyer programs like Pradhan Mantri Awas Yojana offer lower interest rates and down payments and cater to specific groups. Renovation loans focus on home improvements, have flexible repayment options, and may offer tax benefits. However, eligibility criteria will apply in both cases.
How do different types of home loans affect my ability to budget for other expenses and savings goals?
Different types of home loans impact your budget differently. Fixed-rate loans offer predictable payments, aiding budgeting. In variable-rate loans the payments may fluctuate, requiring budget flexibility.
How do different types of home loans affect my ability to qualify for a mortgage based on factors like credit score, income level, and debt-to-income ratio?
Home loans with fixed interest rates are generally harder to qualify for, as they require higher credit scores and better debt-to-income ratios. On the other hand, home loans with adjustable interest rates can be obtained with lower credit scores in certain lending institutions.
Which home loan options offer the lowest initial interest rates, and what factors determine how these rates may change over time?
There are several loan options in India that offer potentially lower initial interest rates. Government-backed programs such as PMAY provide subsidized rates, while lenders may offer promotional discounts. Negotiation based on creditworthiness is also possible. However, these rates are influenced by factors such as your credit score, age, property value, and the type of loan interest rates (whether they are fixed or adjustable).
What should I know about refinancing options for my current home loan? When does it make sense to refinance, and what are the potential savings?
Refinancing your home loan in India can be highly advantageous if done strategically. It's worth considering refinancing when the new interest rates are significantly lower than your current rate, when your credit score has improved, or when you can shorten a lengthy loan tenure. The potential savings on interest can be substantial, but it's crucial to conduct a thorough cost-benefit analysis.
Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.