Till the late 20th Century, most salary earners in the Country were acquiring their houses only after their retirement, when they would get a hefty lump sum amount of their Terminal benefits. But with the changing times and with the advent of new Pvt. sector Banks in the Country and ensuring competition in the Banking sector the Portfolio of Home loans began to scale up rapidly in all the Banks of the Country. This gives rise to the question, of how Mortgage Loans are beneficial to people to get such a stupendous rise in their portfolio contributing to the economy of the Country. We have gone through the various materials on the subject and enumerated the Primary reason for its popularity.
1. Want for owning a Home: All men rich or poor do wish to have their own Home. This want or desire is the prime reason why people are obtaining a Home loan from Financial Institutions.
2. Long repayment period of the loan: Long repayment periods of loans have increased the affordability of Housing loans. Financial institutions are providing repayment periods for Mortgage loans as long as 30 yrs resultantly lower Equated monthly installments. This long period for repayment has lowered the installments thereby increasing the eligibility and simultaneously ease of repayment.
3. Rate of Interest: The rate of Interest on Home Loans have reduced drastically to as low as 6.5% per annum with prevalent inflation at 6%. This translates into a real interest rate of 0.5%. This low rate of interest is an added attraction for obtaining Home loans.
4. Acquiring of Large Assets: With a portion of your monthly income, you can acquire a large Asset. the value of which will gradually grow with the time as well on account of its location where gradually infrastructure developed with the time and also appreciation is on account of inflation.
5. Income tax exemption & rebate: Repayment of Home loan installments are exempt under Section80C, Section 24, and Section 88EEA of the Income Tax Act giving a reduction in Income Tax to a maximum of Rs.5.05 lacs, which may translate into Tax reduction as per tax bracket of the individual assessee.
6.Inflation adjustment: Repayment made towards a Housing Loan is an inflation adjustment repayment and the real rate of interest at present is 0.5% for the loan.? It is observed that the appreciation rate of the property is more than the inflation rate at a given period of time. Further, the house owner is also able to save on the House rent which otherwise he has to pay for the accommodation in the market.
Thus, the Want of a man to acquire/own a house is a prime reason for a Mortgage Loan the supplementary reason are long repayment period, low rate of Interest, Acquisition of large assets by paying a small sum regularly, and Income Tax exemption under home loan and Inflation adjustment.
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