What are the types of home loans available?
There are a variety of home loans available viz:
Home Purchase Loan: is a loan advanced to a person to assist in buying a house or flat.
Mortgage Loan: A mortgage loan, also referred to as a mortgage, is used by purchasers of real property to raise capital to buy real estate; or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property.
What is an EMI?
EMI (Equated Monthly Installment) is the amount payable to the lending institution every month, till the loan is paid back in full. It comprises of a portion of the interest as well as the principal.
What are the factors affecting an EMI?
The EMI of a loan depends on three factors:
Loan amount - This stands for the total amount that has been borrowed by the individual.
Interest rate - This stands for the rate at which the interest is charged on the amount borrowed.
Tenure of loan - This stands for the agreed loan repayment time-frame between the borrower and the lender.
What are the eligibility conditions for a home loan?
To qualify for a home loan, most of the lending institutions in India require you to be:
•  An Indian resident or NRI
•  Above 21 years of age at the commencement of the loan
•  Below 65 when the loan matures
•  Either salaried or self employed
What are the interest rates offered for home loans?
Interest rates are different from institution to institution and generally vary institution to institution and range from about 9.25% to around 12%. The interest on home loans in India is usually calculated either on monthly reducing or yearly reducing balance. In some cases, daily reducing basis is also adopted. Homes loans are offered under daily reducing, monthly reducing and yearly reducing basis.
In this system, the principal, for which you pay interest, reduces at the end of the year. Thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender. This means the EMI for the monthly reducing system is effectively less than the annual reducing system.
In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system.
What are the other costs that usually accompany a home loan?
Home loans are usually accompanied by the following extra costs:
It’s a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. The loan amount required by you cannot be less than the processing fee.
When a loan is paid back before the end of the agreed duration, a penalty is charged by some banks/companies, which is usually between 1% and 2% of the amount being pre-paid.
Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.
It is quite possible that some institutions may levy a documentation or consultant charges.