A home loan is money that an individual borrows at a specific rate of interest to be paid as EMI monthly from a bank or a finance firm. The property is taken as a collateral by the money lending firm.This is how a home loan turns out to be very helpful.

• The land may be commercial or personal.
• The lender will hold all the rights to reclaim the unpaid debt balance by selling the property if the creditor is unable to pay the dues.

Home Loan Types

Home Buying Loan: This is the loan one takes to purchase a home.

Home Improvement Loan: This loan fund costs related to the maintenance or restoration of your home.

Home construction loan: When you are constructing a new house.

Land Purchase: This loan will be used by those wanting to purchase a plot of land to build their own home.

Home Extension Loan: Suppose you intend on adding to your home another room, garage, bathroom, kitchen or a floor.

Joint Home Loan: These are loans taken out by two or sometimes more persons. For instance, for joint home loans, spouses may apply.

Home Loan Balance Transfer: With improved terms and conditions and reduced interest, borrowers use this option to pass the unpaid loan number to another lender.

Top Up Loan: This form of loan encourages you to borrow some additional cash above the remaining balance of the loan. For top-up loans, there are competitive interest rates provided by different lenders.

For India’s home loan market, the last few years have proved to be very dynamic. The government subsidies such as PMAY have improved the country’s real estate market and lending rate changes. It has been simpler and much more beneficial to use housing loans than it was a couple of years ago. This was evident from the growth of 16 percent in housing credits over the 2018 fiscal year. With the continuous implementation of new multiple sector reforms by the central bank and government, borrowers must stay up-to-date to optimise their gains from such advances.

India’s Housing Loan Market Short Summary

• Ten percent– FY 2018 mortgage penetration rate, which is the percentage of housing loans against the GDP of India.

• 300-500 basis points–projected India’s pace of mortgage penetration growth in the next five years.

Updates from the RBI mandating financial institutions to relate their lending rates to external indexes such as the MCLR have triggered the most recent rise in housing credit requirements. This is an important update for homeowners as it is set to have a significant effect on their interest rates on home loans.

The following is an overview of the recent trends in the home loan market and how borrowers will be impacted.

Repo linked interest rates

The implementation of repo-linked interest rates, possibly the most critical improvement in housing credit lending, will make it much easier for homeowners to receive low-interest home loans.

Previously, borrowers were not entirely able to benefit from the repo-rate cuts put out by the RBI under base-rate linked and MCLR-linked lending regimes. But now via the MCLR, the delivery of repo-rate cuts to borrowers can be achieved even more efficiently and with full accountability.

In the region, for example, several financial institutions have already implemented this lending mechanism and lowered interest rates according to the latest repo-rate reduction, placing the RBI rate at 5.40 per cent.

It is also necessary for individuals to validate that this new regime has been incorporated into their housing credit schemes to reduce their EMI payments. Through using an online EMI calculator, you will know more if their compensation obligation shifts.

In addition to lower interest rates, the implementation of repo-linked rates would also provide borrowers with the following advantages –

• This makes it easy to compare loans.

• It encourages openness in lending transactions.

• The faster transition of borrowers’ repo rate cuts.

Incentives from the government

Incentives funded by the government, such as Pradhan Mantri Awas Yojana for home loans and the Real Estate Regulation and Development Act have also helped the country’s housing lending sector increase considerably. E.g. about 65.43 Lakh homes were accepted under the urban PMAY scheme. Furthermore, 93,000 beneficiaries have already taken advantage of the PMAY credit-linked subsidy programme, which helps individuals to access their home loans at reduced interest rates.

While PMAY gave individuals an ideal chance to purchase their dream home, RERA’s implementation made real estate investments much safer for borrowers. Since 2019, to secure home buyers’ rights, 29 states/union territories in India have been included in RERA.

Conclusion: This is the most critical update in the home credit market that borrowers can get to know to optimise their advantages. In comparison, individuals can search at considerations such as the high value of loans, adjustable tenors, limited paperwork, balancing transfers, etc. to make sure the right mortgage financing available is available to them in the market.