A home loan extension is an extension of tenure to repay an existing loan. When a home loan debtor may not be able to pay the EMIs in the agreed duration under certain circumstances, they might consider a home loan extension. This provides relief for the debtor. On the other hand, any person who wishes to extend their existing house to increase its living space can apply for a home extension loan. A debtor can get these loans for a maximum tenure of 20 years for up to 90% of the construction estimate. This article decodes what home loan tenure, home extension loans, home loan duration, tips on extending their house, and more are.
What is Home Loan Extension
A home loan is one of the biggest liabilities one will ever face in their lifetime. Apart from being the longest-tenured loan. It also has the highest interest rate. Therefore, most home loan borrowers are constantly seeking ways to reduce the amount they pay on their equated monthly installments (EMIs).
One can consider extending their home loan tenure if they are under financial stress and want to reduce their EMI. When one’s home loan has 10 years left to run at 7.5% and the tenure is extended to 20 years, one can save Rs 15,257 on one EMI.
Fees and charges
In addition to applicable taxes, loan processing fees are charged as a percentage of the loan amount. In addition to advocate fees (if applicable), property insurance premiums, and stamp duty charges for loan agreements, there may also be other charges.
Documentation
Applicants who are salaried and self-employed must provide these documents:
- All applicants must provide proof of identity and address
- Employment contracts and salary slips are examples of proof of income
- Documents that prove the title of a plot and that there are no encumbrances
- Local authorities have approved construction plans and proposed construction estimates.
- Pictures
Advantages of Home Loan Extension
Significantly lower monthly EMIs
A home loan extension offers short-term relief if the borrower is on a tight monthly budget. By extending the tenure of their home loan, borrowers can minimize the monthly deductions. However, this may also lead to a higher interest amount the borrower will pay in the entire tenure.
Income tax benefits for a longer period
The interest payment on a home loan can be tax-deductible if one chooses a longer repayment period. Because there are no alternative tax benefits as efficient as those on home loan interests, one should take advantage of them for as long as possible. Under Section 80C of the Income Tax Act, one can deduct up to Rs.1.5 lakh for repayment of the principal component of a housing loan. A short repayment period will result in a higher principal component, and one will not be allowed to deduct above the specified limit for a short repayment period. Therefore, a home loan extension is preferred when it comes to getting tax benefits.
Great Flexibility
Home loan extension gives a great deal of flexibility to the borrowers while repaying their loans. Home loans are available with fixed or floating rates of return, and prepayment is not penalized. Prepaying the entire loan amount or a portion of it can lead to debt freedom. Debtors can repay the loan based on their cash flow with the option of prepayment without paying the penalty.
Larger loan size
The extended repayment tenure allows the borrower to qualify for a greater loan amount, A long repayment tenure also allows one to qualify for a greater loan amount. A long tenure also means a lower EMI since their home loan eligibility depends on their ability to repay the loan amount through Equated Monthly Instalments (EMIs). A shorter tenure will require the debtor to repay the borrowed amount in large EMIs, which is not the case when one opts for a shorter tenure. If borrowers choose a longer loan term, lenders will also offer borrowers a higher loan amount and allow them to buy a bigger or better home.
Home Loan Tenure
A home extension loan is usually offered by banks, non-bank finance companies, and housing finance companies for up to 30 years. When determining a loan applicant’s repayment capacity, lenders consider their repayment capacity. Applicants usually must limit their monthly EMI contribution, including the EMI of their proposed loan, to 50-60% of their gross monthly income. For home extension loans, applicants can use the home loan EMI calculator to determine the loan tenures and EMIs based on their repayment capacity.
What is a home extension loan?
With the help of home extension loans, one can extend their home instead of moving to a bigger house. Home extension loans are the perfect solution when one wants to increase the living space in their house. As a housing solution, home extension loans provide them with finance to meet the costs of the extension.
Features of Home Extension Loan
- Lenders usually provide home extension loans at floating interest rates. A home extension loan’s interest rate is determined by factors such as the applicant’s credit score, monthly income, occupation profile and employer profile. The interest rates on home extension loans are typically the same as those on regular home loans.
- Borrowers get tax benefits on the principal along with the interest components of their home extension loan under the Income Tax Act 1961. As the tax benefits could vary each year, borrowers can check with a Tata Capital expert to explore the particular benefits they could avail of.
- Debtors can get a Home Extension Loan for a maximum tenure of 20 years or till their age of retirement, whichever is lower.
Advantages of Home Extension Loan
Do Not Need To Shift
Moving to a new house in a new neighborhood can be quite challenging, especially since they are used to their current surroundings. Using a home extension loan, one can add a floor or a room to their existing house and effectively meet their space needs without moving.
Ease of Procurement
The simplicity of applying for and receiving home extension loans is one of their most significant advantages. Online applications require minimal documentation, and the entire process is completed online.
Longer Tenure For Repayment
A home extension loan is similar to a housing loan in that it is also given for a long period and can be repaid through monthly installment payments.
Conclusion
Furthermore, the term of the loan depends on the customer’s profile, the customer’s age at the time of maturity of the loan, the property’s age at maturity, and any other terms stipulated by lenders. If someone is short on funds and needs to extend the house, they can always take the help of Tata Capital and get a Home Extension Loan. Click on the link to learn more.
19 July 2024
6 mins read
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