More About Home Loan, Home Loan

Types of Home Loan

  1. Home Purchase Loan: For the purpose of purchase of a house.
  2. Home Construction Loan: For the purpose of self-construction of a residential home.
  3. Land Purchase Loans/Plot Loans: For the purpose of purchase of a plot of land for construction or as an investment.
  4. Home Extension Loan: For the purpose of add more space to your existing home.
  5. Home Improvement Loan: For the purpose of internal or external repairs, waterproofing, electrical works, painting, roofing, plumbing, etc.
  6. Residential Plot Loan: For the purchase of a residential plot of land in an urban area, and build your house subsequently.

Charges associated with Home Loan

  • Processing Fees
  • Part Prepayment Fees
  • Penalty for delayed payment
  • Cheque / Repayment Mode swap charges
  • Cheque / ECS dishonour Charges, per transaction
  • Conversion charges

Equated Monthly Instalment (EMI)

EMI is the amount you will pay to bank on a specific date each month till the loan is repaid in full.

The EMI comprises of the principal and interest components. These components are designed in such a way that the interest component is much larger than the principal component during the initial years of your loan, while the principal component is much larger than the interest component during the later years of the loan.

You can use our EMI calculator to find out your monthly payments based on the loan amount, the rate of interest and the repayment period.

Interest Charge

Majorly, 2 types of interest rate offered on home loans, which are-

Fixed Interest Rate- Fixed rate of interest means the rate of interest remains unchanged for some initial years but not during the entire duration of the loan. This means one does not benefit even if home loan interest rates drop in the market during the tenure of his/her loan. It provides safety from Fluctuations for a predetermined period of time. The fixed rate remains fixed only for initial 3 year to 10 year terms, after that the interest rate automatically gets converted into the floating rate prevailing at that time.

Floating Interest Rate- Floating rate of interest fluctuates with the market lending rate. This means one has the risk of paying more than he/she budgeted for, in case the lending rate goes up. One needs to pay lower EMI when rates fall.

It depends upon the borrower to decide which option to choose based on what suits him/her the best.

Down Payment (Margin)

When you buy any house property, banks extend home loan of around 70% to 80% of the property's value. The balance amount has to be arranged by the borrower himself. Down Payment is a fraction of the value of your home that you have to pay on your own i.e. out of your own pocket and rest of the amount is funded as home loan by the lender. Down payment is indispensable for a home loan. For example, suppose if you buy a house worth Rs. 50 lakhs and bank approves a home loan of Rs 40 lakhs which is 80% of the value of the property so you need to pay remaining 20% as the down payment (margin) on your own.

Loan Offer Letter

When your loan is sanctioned, you will get a loan offer letter comprising following details:

  • Sanctioned Loan Amount
  • Rate of Interest
  • Type of Interest: Fixed/ Floating
  • Loan Tenure
  • Equated Monthly Instalment (EMI)
  • Other terms of the loan

This is an important legal document that sets out the conditions. This letter is issued after the home loan approval process is completed by the lender and prior to you getting the final home loan agreement. This letter does not mean that you got the loan. It only states that the lender is ready to approve your loan application.