Total Interest Payable
Total Amount Payments
Home not only gives a permanent shelter for your family and you but also acts as a financial security. You save on the expensive monthly rent and don’t live in the apprehension of suddenly being asked to vacate your space. While buying a dream home might be beyond your existing budget, you could easily take a low interest bank loan and fulfil your housing needs. You can easily payoff the loan amount and the interest rate incurred with the help of Equated Monthly Instalment (EMI) facility. Yet, on a word of caution, take only that much loan which you would feel comfortable paying it off. So, prior to applying for the home loan, it is a good practice to evaluate the Equated Monthly Instalment (EMI) which should be manageable in your current salary or income.
The Home Loan EMI comprises of the principal amount and the interest incurred. In equation form,
EMI = Principal Amount + Interest Applicable on the Loan.
In most cases, you would be obliged to pay a fixed EMI for the overall loan tenure. The interest rate incurred on a loan along with the principal amount is broken up into equal portions to cover the entire loan period. Banks usually schedule the payment in such a manner that most of the interest is paid off in the initial loan duration. Over time, as you make the loan repayment, a greater part of the EMI is adjusted towards the principal loan value, since EMIs are calculated on the method of reducing balance. The factors affecting the loan EMI constitutes of loan tenure and interest rate.
Home Loan EMI- an Introduction
EMI or Equated Monthly instalment is a structured and comfortable method offered to the home buyer for easy loan repayments. The repayable value (Principal Amount + Interest on the Principal Amount) is broken into smaller amounts and spread evenly throughout the loan period with equal monthly payable amounts. These equal monthly payable amounts are known as Equated Monthly Instalment of EMI.
In a bid to help the loan applicants with information regarding year-end balance values, banks provide an amortization schedule that gives a thorough information on amount paid towards principal and interest rates.
Types of Home Loans
Indian banks offer different types of home loan options for different purposes.
- New Home Loan: It is offered to eligible people desiring to invest in their first property of house.
- Pre-approved Home Loan: It is offered to eligible people after evaluating their creditworthiness, and income and financial position for an in-principal loan approval.
- Home Purchase Loan: It is offered to people interested in buying flat or house.
- Home Loan for Construction: It is offered to customers who already have a property and want to build a home on that.
- Plot Loan: It is offered to customers who want to invest in a plot or piece of land for house construction purpose.
- Home Loan Top Up: It is offered by numerous banks and NBFCs to allow existing customers to borrow a specific value above and over the existing home loan.
- Home Extension/Renovation Loan: It is offered to customers who intend to renovate or extend their present house or property.
- Balance Transfer Home Loan: This option allows customers to shift their home loans from one bank to another. Borrowers usually avail this facility to enjoy better interest rates.
Home Loan Amortization Schedule
Although the EMI amounts remain standard all-through the loan period, their repayments are scheduled to pay off different percentage of principal and interest values. In general circumstances, the initial EMIs are scheduled to pay off a greater percentage of interest rate payment and a smaller percentage of principal amount repayment. However, towards the end of the loan tenure, the trend gets reversed as most of the interest values has been paid. Hence, at this time a bulk of the EMI amount is paid towards the principal amount repayment, while a smaller percentage is paid off towards interest rate repayment.
The Home Loan Amortization schedule provides a documented break-up of the amounts repaid towards interest and principal values with corresponding balances through every loan year.
In simple terms, the amortization schedule provides a road map of the home loan repayment and denotes the milestones and ideal points regarding your outstanding loan all-though the loan cycle.
Home Loan EMI Calculator
The Home Loan EMI calculator helps you to plan the loan tenure and repayment structure to help you in decision making. With the help of the Home Loan EMI Calculator, you can plan on the loan amount which you are comfortable paying off during a specific tenure. All you have to do is insert the principal value, loan duration, and rate of interest, and the Home Loan EMI Calculator would display the applicable EMIs on the chosen loan duration.
You must keep in mind to refer the amortization table for a yearly repayment plan in the entire loan duration.
Eligibility for Home Loan
Most lending bodies have certain eligibility criteria for home loans. They are as follows:
- Citizens of India (Resident Indians, Non-resident Indians (NRIs), and Person of Indian Origin (POI).
- Minimum age 18 years and maximum age 70 years.
- Government or private employee.
- Business people or self-employed who regularly file their Income-Tax Returns.
- Net annual income of minimum 5-6 lakh INR depending on the employment type.
- Must possess a permanent residence or a rented residence for at least a year prior to applying for the loan.
- Good credit score from a recognized credit bureau.
Home loan applicants need to have following documents and photographs ready before applying for the home loans:
- Age Proof (Aadhaar/ Driving License/ PAN Card/ Passport/ etc.)
- Bank Statements
- Credit Report
- Income Statements
- Latest Income-Tax Returns
- Photo Identification Proof (Aadhaar Card/ Bank Passbook/ Driving License/ PAN Card/ Passport/ Voter ID/ etc.)
- Property-related documents (Agreement of Sale with builder, Certified copy of the sanctioned property plan, Detail of estimated cost of construction, Letter from the builder/ housing board/ society stating their bank account details for remittances, No Objection Certificate (NOC) from the builder or housing society, Original receipt on the advance paid for the property purchase, Possession certificate, Receipts of land and building tax payment, and Sale deed)
- Proof of Address (Aadhaar Card/ Driving License/ Electricity Bill/ Passport/ Ration Card/ Telephone Bill/ etc.)
- Salary slips and Form 16
In case you are transferring your home loan balance from another bank or financial institution, then you would need to submit the following documents:
- Current details of loan along with six months of bank statement from where the EMIs are deducted.
- Indenture of guarantee, an undertaking of indemnity, forwarding letter and Annexures in Axis Bank format
- Existing 12 months loan account statement along with the latest outstanding letter
- Receipts of own contribution
- The original list of documents from the previous financer
Minimum Borrowing Amount
The banks and financial bodies usually keep a minimum loan borrowing amount of three lakh (3,00,000) INR.
Home Loan EMI Due Date
The EMI would be due on a monthly basis on a fixed date. You would be notified about the EMI date at the time of loan disbursement.
Home Loan Sanction Duration
You can have your home loan sanction in 3 to 4 weeks. However, several external factors like delay in submission of property or income-related documents could extend the loan sanction period.
Fixed Rate and Floating Rate Home Loan
If you opt for Fixed Rate Home Loan, then the rate of interest would remain constant in the overall loan tenure. Contrarily, for Floating Rate Home Loans, the rate of interest would be revised periodically on the basis of RBI key policy rates. As a result, the equated monthly instalments could increase or decrease on the basis of the prevailing RBI rates.
Home Loan for Home Improvements and Home Extension
Even if you already own a home, still you can apply for home loan for various home improvement and home extension purposes such as construct of a new room, home repair, home renovation, and home extension.
- Home loans come with added tax benefits. You are eligible to enjoy tax benefits on the principal amount of the home loan EMI under Section 80C of the Income-tax Act, 1961. The maximum tax benefits that you can avail on a home loan is capped at 1.5 lakh INR.
- First-time home purchasers can enjoy an added deduction up to 50,000 INR under Section 80EE (subject to specific conditions). This added deduction could be availed after you first exhaust the limit under Section 24(b) for the interest value.
- Section 24(b) of the Income-tax Act, 1961, permits a deduction on the interest value of the home loan EMI. You can enjoy a deduction of up to 2 lakh INR under Section 24(b) on a self-occupied property.
- In the instance of a property which is rented out to the tenants, that is, a Let-Out Property (LOP), the actual payable interest is entitled for deduction under Section 24(b). It is not capped by any limiting value.
- If you purchase a home loan for reconstruction, repair, or property renovation, the entitled deduction value under Section 24(b) is capped at 30,000 INR, irrespective of whether it is a self-occupied property or a Let-Out Property.
Home Loan Fees and Charges
On the basis of the applicable home loan type, you would be levied the following fees or charges:
- Change in Loan Term: You may be charged a nominal fee in case you desire to alter the loan reimbursement tenure.
- Cheque Dishonour Charges: Ensure to have sufficient funds in your bank account where you intend to make the monthly EMI payments. In case, the account has insufficient funds, and the EMI cheque gets dishonoured, then the lending body would issue cheque dishonour charges.
- Consultant Fees: You may want to have a consultant such as a valuator or a lawyer evaluate the property and give his opinion on the loan value. In such case, you would have to pay the consultant the designated fees.
- Conversion Fees: If you decide to switch to a different loan scheme that offers more favourable interest rate on the existing loan value, then you may have to pay specific conversion fees.
- Default Charges: Different banks apply different default charges in the instance of delayed EMI payments.
- Home Insurance: Banks usually asks you to buy an accompanying home insurance to secure it against unforeseen mishaps. The home insurance is generally a compulsory investment and purchased after being evaluated for its market value.
- Incidental Charges: The fees cover the bank-incurred expenses to recover dues from a defaulter who failed to make timely monthly EMI payment.
- Photocopy of documents: You would have to pay a certain fee to the lending body in case you need photocopies of the home loan documents for any particular requirement.
- Prepayment Charges: You may have to pay prepayment penalty if you intend to make a repayment on the loan value earlier than the scheduled loan tenure.
- Processing Fees: It is a non-refundable fee paid for one-time to the home loan provider at the time of loan approval. The processing fees would be different for different banks and the chosen loan scheme.
- Statutory/regulatory charges: It comprises of entire charges associated with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), Memorandum of Entry and Deposit, and stamp duty.