SWOT analysis is a strategic technique to determine the Strength, Weakness, Opportunity, and, Threat of any financial plan or strategy. An individual should carry out a SWOT analysis before applying for a home loan from any financial institution.
Home loans are long-term credits that can stretch for up to 20 years or more. Since these are of high-value, proper assessment of future financial management is critical to ensure a borrower does not default on the loan. Defaulting can lead to seizure and liquidation of the house by the lender (if covered under the SARFAESI Act.)
While carrying out the SWOT analysis, one should consider the following points –
Benefits of a home loan
● Tax benefits – One can avail home loan tax benefits under Sections 24(b), 80C, and 80EEA.
Under Section 24(b), one can claim an exemption on the interest component up to Rs. 2 lakh if it is self-occupied, and on the whole interest amount if it is rented.
Home loan tax benefits under Section 80C are available on the principal component along with stamp duty and registration fees up to Rs.1.5 lakh.
First-time home buyers under an affordable housing scheme can claim home loan tax benefits interest paid of up to Rs.1.5 lakh under Section 80EEA. This benefit is available over and above Section 24(b). Few conditions of this section include –
- Stamp value of the property is up to Rs.45 lakh.
2. Carpet area is restricted to 60 sq. m in Tier 1 cities and 90 sq. m in other cities.
Borrowers can use a home loan tax benefit calculator – it is an online tool that enables one to estimate tax exemptions that they can avail on their home loan.
- Top-up loan – If you have availed a Home Loan from a leading HFC like BHFL, you can avail additional funding in the form of a Top-Up Loan. Since it has no end-use restriction, one can fulfil their urgent financial needs with a top-up loan.
- Property dossier services – Borrowers can also avail customised reports on their property when they opt for a home loan from reputed financial institutions. It contains property credit history, legal, and technical of the asset they are purchasing, etc. It will guide the prospective buyer through the overall property transaction procedure.
Interest rates
There are two types of home loan rates – fixed and floating. When one opts for a fixed interest rate, it stays the same throughout the repayment period. It safeguards one from the interest rate fluctuations. Fixed rates also enable one to strategize their finances easily.
On the other hand, floating interest rates change according to per the MCLR. If the market or benchmark lending rates move up, one has to pay higher EMIs and vice versa.
Eligibility criteria
Applicants should go through the eligibility requirements asked by lending institutions to check if they can avail a home loan. Failure to meet the eligibility criteria can lead to rejection of their loan application. The requirements can vary slightly for each lending institution.
However, there are some basic criteria that a borrower must meet. For instance, most financial institutions require that the borrower must be a resident of India. Other criteria include –
● Salaried applicant
i. Age should be within 23 – 62 years.
ii. He or she should be employed for a minimum of 3 years.
● Self-employed individual
i. Should have a business running for more than 5 years.
ii. Age of the applicant should be within 25 – 70 years.
Apart from eligibility criteria, a prospective buyer should also go through the list of all documents for a home loan. Considering that home loan is a long-term financial product, one should carry out SWOT analysis. It will help them to know about the home loan tax benefits and also avoid any errors or confusions while applying.
