What is a House Loan - Basics to EMI's

8/12/2019 What is a House Loan - Basics to EMI's

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1.What is a House Loan?Home loan is the sum of money a bank or financial institution lends you to help you buyyour dream home. By taking a Home Loan from a bank or a housing finance companyyou pledge your home as the lender's security for repayment of your loan. The bank or

financial institution will hold the title or deed to the property till the loan has been paidback with the interest due for it.Home loans are generally taken for long tenures as the loan amount is usually a hugesum. A Home Loan can be taken anywhere between 5 and 30 years. The amount of loanone is eligible for is dependent on the individual's credit profile.

2.What are the eligibility conditions for a Home Loan?Indians with a regular source of income, which includes salaried individuals, self-employed professionals, self-employed business people, NRI individuals and existing

property owners who can pledge it as security for the loan, are all eligible for a HomeLoan. The individual applying for the loan should be above 21 years of age, when theloan period begins and should be less than 65 years when the loan period closes.

3.What are the interest rates offered for Home Loans?Home Loans floating interest rate varies from 8% to 9.75%. Fixed interest rate for HomeLoans is usually higher than floating interest rate and is around 8% to 14%.

4.What is the best way to select the cheapest Home Loan?A loan applicant needs to very vigilant when comparing loans. The applicant needs todetermine the kind of loan and the amount he wants to apply for. He needs to keep inmind the total cost of the loan, which will be paid up by the end of his loan tenure.The second step is to understand the terms and conditions under which financialinstitutions are offering the loan. Finally he needs to evaluate, which loan offer is the bestbet for him. He should also look for minute points like prepayment charges, fixed orfloating interest rate.Other factors that you should look out for are customer service levels and the averagetime the bank takes to process a loan.

5.What are the tax benefits of taking a Home Loan?Section 80C and Section 24 grant income tax rebates to people who have taken HomeLoans. These tax deductions are capped at 1 lakh for the principal repaid and 1.5 lakhsfor the interest repaid.


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6.What are the documents required for obtaining HomeLoans?

Here is a standard list of options for each document required for home loan.

A. Identity proof:Driving license, Voters ID, Passport, PAN card, Ration card, Employee ID, Bankpassbook, Letter from a recognized public authority or public servant verifyingyour photograph, Confirmation letter from your employer or another bankverifying your photograph

B. Address Proof:Driving license, Voters ID, Passport, Ration card, Bank passbook or Bank

account statement, LIC policy/ receipt, Utility Bill - telephone, electricity, water,gas (less than 2 months old), Letter from any recognized public authorityverifying residence address of the customer, Letter from your employer

C. Age Proof:Driving license, Passport, Bank passbook, PAN Card, Birth certificate, 10thstandard mark sheet

D. Income Proof:The following set of documents that detail your credit profile varies according towhether you are a salaried individual or a self-employed individual.

e. Self Employed/Entrepreneurs:I. A brief introduction of Business/Profession

II. Balance Sheet, profit and loss account statement of income, proof of income tax returns for the last 3years certified by a CA

III. PhotographsIV. Receipts of advance tax payments if any madeV. A photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories

ActVI. Registration Certificate for deduction of Profession Tax

VII. Certificate of PracticeVIII. Receipts of Bank loans

IX. Proof of investments (FD Certificates, Shares, any other fixed asset)f. Salaried Individuals:

I. Income Proof ( you just need to provide one of the options listed for income proof): Latest Pay slip, Form16, Increment/Promotion letters, Appointment letter, Pay slip (Last 2 months) with salary account bankstatement, Certified letter from Employer, IT returns ( for three years )

II. Investment proof (FD certificates, shares, any fixed asset etc.)III. Documents supporting the financial background of the borrower (his liability and assets if any)IV. Photographs

7.When can I apply for a Home Loan?


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You can take a Home Loan before or after identifying the property you want to purchaseor when the property is under construction or for purchasing a plot of land for investmentor to renovate an existing home.

8.What is the repayment period for a Home Loan?The home loan repayment period varies from bank to bank and you should get the rightinformation from your bank. However, normally home Loans can be repaid in maximum25 years (floating rate option) and 15 years in (fixed rate option). However, present ageof borrower plus repayment period should not be beyond retirement age in case ofsalaried persons and beyond 65 years of age in case of others.

9.What security needs to be provided for a house loan?Banks usually take some additional securities which are called collateral securities. These

may be in the form of guarantee from one or two persons, assignment of life insurancepolicies, deposit of shares, and units or other securities. These additional securities aretaken with the hope that if a loan is not paid back recourse may be taken to suchsecurities instead of depending upon the mortgage of the property which is the last resort.Guarantors, when alerted, become very effective persons in prevailing upon theborrowers to fulfill their obligations.

10. What are the types of home loans available?. Home Purchase Loans:

This is the basic home loan for the purchase of a new home.

I. Home Construction Loans:This loan is available for the construction of a new home on a said property. Thedocuments that are required in such a case are slightly different from the ones yousubmit for a normal Housing Loan. If you have purchased this plot within aperiod of one year before you started construction of your house, most HFCs willinclude the land cost as a component, to value the total cost of the property. Incases where the period from the date of purchase of land to the date of applicationhas exceeded a year, the land cost will not be included in the total cost of propertywhile calculating eligibility.

II. Home Improvement Loans:These loans are given for implementing repair works and renovations in a homethat has already been purchased, for external works like structural repairs,waterproofing or internal work like tiling and flooring, plumbing, electrical work,painting, etc. One can avail of such a loan facility of a home improvement loan,after obtaining the requisite approvals from the relevant building authority.


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III. Home Extension Loans:An extension loan is one which helps you to meet the expenses of any alterationto the existing building like extension/ modification of an existing home; forexample addition of an extra room etc. One can avail of such a loan facility of a

home extension loan, after obtaining the requisite approvals from the relevantmunicipal corporation.

IV. Home Conversion Loans:This is available for those who have financed the present home with a home loanand wish to purchase and move to another home for which some extra funds arerequired. Through a home conversion loan, the existing loan is transferred to thenew home including the extra amount required, eliminating the need for pre-payment of the previous loan.

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Land Purchase Loans:

This loan is available for purchase of land for both home construction orinvestment purposes.

VI. Stamp Duty Loans:This loan is sanctioned to pay the stamp duty amount that needs to be paid on thepurchase of property.

VII. Bridge Loans:Bridge Loans are designed for people who wish to sell the existing home andpurchase another. The bridge loan helps finance the new home, until a buyer isfound for the old home.

VIII. Balance-Transfer Loans:Balance Transfer is the transfer of the balance of an existing home loan that youavailed at a higher rate of interest (ROI) to either the same HFC or another HFCat the current ROI a lower rate of interest.

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Re-finance Loans:

Refinance loans are taken in case when a loan for your house from a HFI at aparticular ROI you have taken drops over the years and you stand to lose. In suchcases you may opt to swap your loan. This could be done from either the sameHFI or another HFI at the current rates of interest, which is lower.

X. NRI Home Loans:


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This is tailored for the requirements of Non-Resident Indians who wish to build orbuy a home or property in India. The HFCs offer attractive housing finance plansfor NRI investors with suitable repayment options.

11. Can one take a home loan for construction in a citywhile working in another city?

Yes, you can take loan for construction in one city while working in another city. TheHFC's generally service this loan after getting details of the plot legally verified.

12. How is the interest calculated on my loan?Your loan balance decreases as you pay each EMI and the amount of interest chargedeach month decreases as the loam balance decreases. The formula used by is:

13. What is the difference between fixed rate ofinterest and floating rate of interest?

A fixed interest rate remains constant throughout the loan tenure regardless of the marketconditions whereas a floating interest rate can decrease or increase depending on marketfluctuations. For instance, it increases when RBI hikes up short term interest rates. Banksusually quote the floating rate loans as their index rate (prime lending rate) plus or minusx%. Banks usually increase or decrease their prime lending rate when the RBI increasesor decreases short term interest rates.

14. What is EMI?An equated monthly Installment (EMI) is the amount of money that is paid back to thelender on a monthly basis. It is essentially made up of two parts, the principal amount andthe interest on the principal amount equally divided across each month in the loan tenure.The home loan EMI is always paid up to the bank or lender on a fixed date each month

until the total amount due is paid up during the tenure.

Find address of personal loan providers in $City name$ (the city name will behyperlinked to the city page from bank locations displaying all the banks in that city)