Constructing your home is a costly affair that is bound to take a toll on your finances. Moreover, if you are currently repaying a home loan and undertaking the construction, you will be under great financial stress. The first option you should consider is a home construction loan to make things easier for you. Another avenue you can approach involves applying for an interest deduction on the home loan.
How Does Home Loan Interest Deduction Work?
If you are constructing the home, you can approach your home loan company to avail a discount on repayments. However, you must keep a crucial factor in mind while making such a move. Interest deduction will only be applicable if house construction is completed within 5 years from the end of the financial year when you availed the home loan.
Additionally, the maximum deduction amounts to Rs.2 lakh if you are occupying the house in question. However, if you are letting out or renting out the property, there is no upper limit for an interest deduction on your home loan.
It is vital to remember that this deduction can only be availed after the house construction is complete. You can avail the interest for when the construction was underway in five equal instalments.
While such deductions are greatly helpful, a house construction loan offers more immediate financial assistance during constructions.
Features of Home Construction Loans
Home construction loans can be a boon to people who cannot afford to spend substantial sums of money on constructing their dream home. The following features in these loans make them a worthwhile option for many.
- High Loan Quantum
Depending on your income, profession and expense of construction, you can avail substantial funds as a home construction loan. Therefore, regardless of whether you are building a simple one-storeyed house or a bungalow, the principal sum would be sufficient for the construction.
- Flexible Repayment
Such loans provide substantial options to borrowers when it comes to the repayment tenor. If you want to be debt-free soon and have the necessary financial backing to clear off loan payments, opt for shorter terms. Those with limited earnings can instead opt for a longer tenor to avail reduced EMIs. In some cases, home construction loan tenor may range up to 20 years as well.
- Balance Transfer Facility Available
If you are unhappy with your current lender and want to change financing companies midway through the loan repayment, you can easily do so. Balance transfers can aid you to reduce interest payments in some instances.
- Tax Rebates
Those with existing housing loans can avail home loan tax benefits on these forms of credit under the Income Tax Act of 1961. The discounts can amount up to Rs.2 lakh on the interest for the loan and up to Rs.50,000 on the principal sum.
- Instant Approval
If you are planning to start construction soon, you cannot afford to wait too long for the financial assistance. Thankfully, most reputed lenders today offer instant approval options to applicants, provided they meet all eligibility criteria and documentation requirements for the loan in question.
Rest assured, if you complete the process properly, your loan should disburse in just a few hours after approval.
Learning all you can about home construction loans is important before you apply for the same. Determine the right loan amount and pick the best HFC to avail the credit.
Choose carefully whether you only need an interest deduction on your home loan when constructing your dream house. In some cases, a home construction loan is the better option for your financial woes at such a time.