Home loans in India: Prepayment, Down payment, EMI and Interest rates

If you are looking for a home loan in India, you need to learn the technicalities involved. Read this post for explanation regarding different terms used with the home loans in India.

The popularity of home loans is on continuous rise in India. With the increasing awareness and easy availability of home loans, these are becoming quite common among the people. Since the terms and conditions for a home loan have different technical terms, it might not be possible for a common man to understand the different features. On the other hand, if you are aware about all the technical terms, it will make the whole process easier for you. Thus in this post, we will discuss the different terms used with the home loans, so that you can understand them properly.

EMI – Equated Monthly Installment

In simple terms it is monthly amount that you are required to pay to the lender (Bank or any other institution that provided the home loan). The factors that decide the amount of monthly installment are the loan amount and the repayment duration. All these things are clearly mentioned in the loan papers. One of the common questions asked by the investors is that how much loan should be taken so that it results in payable monthly installment. As a general rule, if the monthly installment on the loan amount is 30% or less of your monthly salary, you can go with the loan amount. This will help you to avoid any financial crisis so that you can meet all the other responsibilities without any headache. You can even use the EMI calculators to calculate the exact amount of Equated Monthly Installment required for a particular loan amount on a particular interest rate. You can find such EMI calculators on the official websites of different banks.

Interest mode in Home loans

Basically, there are two modes of calculating interest on the home loan- fixed and floating. Let us discuss both these interest types one by one. In fixed type, you have to pay a particular interest rate for the entire duration. It means that if at the time of taking the loan, the fixed interest rate is 12%, it will remain same during the entire loan duration. On the other hand, in floating type the interest rate fluctuates and depends on the market conditions. It may either increase or decrease in future and thus uncertainly is involved with this particular type of home loan. You can choose any of these as per your convenience. The ideal type depends on a number of factors like the loan amount, duration of the loan and your financial condition.

Down payment for Home Loan

Very few people are aware about this feature of home loans. The down payment refers to the amount of money that you are required to pay to the bank at the time of taking the loan. Generally, you have to pay 20 % of the loan amount directly to the bank. It means that if the loan amount is 50 lakhs, you will have to pay about Rs 10 lakhs as down payment. You have to pay this amount as advance. The rest of the amount i.e. 40 lakhs is sanctioned by the bank and is covered as the loan amount.

Prepayment of Home Loans

Prepayment option allows a person to return some amount of the loan in advance during the loan duration. This results in enhanced savings for the person as he is required to pay interest on the remaining loan amount only. In brief prepayment allows you to reduce the burden of the interest rates. Most of the people taking home loans do use this feature as it helps to save their hard earned money. A precaution to take with the prepayment option is to check all the related terms and conditions so as to avoid any complication in future.

I hope this post helped you to understand the different features of home loans in India. If you have any doubt regarding the home loans, you can leave a response below and I will reply ASAP.


Author: Anwesha17 Jun 2016 Member Level: Gold   Points : 4

I was looking for this information in the recent days. And here it is. What I wanted to know still further is, whether there is any minimum amount of monthly income criteria to be fulfilled to apply for a home loan. And a little bit on the tenure, i.e., what is the deciding factor behind the tenure of loan repayment. It will be really useful if you enlighten me on this.

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