A home loan refers to the money borrowed from banks and other financial institutions for buying a house, flat or a plot of land (to construct a house) or to undertake renovation, extension and repairs to an existing house. The property is taken as collateral or security by the lending company until the loan is repaid with the due interest. In the event that the borrower fails to pay the dues, the lending institution will hold legal rights to recover the outstanding loan amount through the sale of the said property. The interest charged on home loan can be on a floating or fixed basis, or a combination of the two, depending on the borrower’s requirement.
It is important to note that tax benefits can be claimed on home loan repayment. The interest paid for the year can be claimed as a deduction from total income up to a maximum of Rs. 2 lakhs under Section 24 of the Income Tax Act, 1961. Under Section 80EE of the Act, an additional tax deduction can be claimed by first-time home buyers up to Rs. 50,000 per financial year on the interest portion. The principal paid for the year is allowed as a deduction under Section 80C up to a maximum of Rs. 1.5 lakhs.
The Home Loan Calculator computes the EMI payable on a home loan, on the basis of the details entered by the user. An individual will be required to input the loan amount, interest rate and tenure into the calculator, and the tool will calculate the amount payable as EMIs. The loan amount here refers to the money borrowed for purchasing a house. The interest rate is denoted as a percentage charged by the lender on the loan, and tenure is the time allotted or chosen to repay the loan.
The mathematical formula that can be applied to calculate EMIs on home loan is:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
The eligibility criteria to avail a home loan will differ from one lender to another. Listed below is the basic home loan eligibility criteria for some of the financial institutions across the country:
Eligibility Criteria for an Individual
Source: Kotak Mahindra Bank
Age Limit of Salaried Individuals - 23 to 62 years
Age Limit of Self-Employed Individuals - 25 to 70 years
Required CIBIL Score - Minimum 750
Work experience of Salaried Applicants - At least 3 years
Business Continuity - At least 5 years
Minimum Salary - Rs. 25,000
Nationality - Indian, residing within the country
Source: Bajaj Finance
Individuals in permanent service in the government or reputed companies come under the home loan eligibility criteria.
Applicants must be above 21 years of age during the time of loan commencement and up to the age of 60 or superannuation, whichever is earlier at the time of loan maturity.
Source: Axis Bank
There are several benefits to using a home loan EMI calculator. Here is a look at a few of them:
Some of the factors that have an impact on home loan interest rates include:\
Marginal cost of funds based lending rate (MCLR) - This is the minimum interest rate, below which a banking institution is not allowed to lend. MCLR is determined after factoring in tenor premium, marginal cost of funds, operating costs and negative carry on account of cash reserve ratio. Given that these elements differ among lenders, the MCLR can also vary to a large extent. Institutions with lower MCLR generally have lower lending rates for clients with same credit profile.
The MCLR of the banks shall impact interest rate even after sanction. Banks review home loan interest rate of their current customers at least one time a year on a pre-specified reset date. The MCLR on that date shall remain applicable on home loan until the next reset date, regardless of any changes in MCLR in the interim months.
Credit score - This is a three-digit number, representing an individual’s creditworthiness. It can range from 300 to 900, and the closer the figure is to 900, the better. Most banks and other financial institutions accept applications from users whose scores are 750 and above.
Many lenders also factor in the credit scores while ascertaining the interest rates for their loan applicants. Those with high scores are charged lower interest rates, while applicants with low scores end up paying more in interest. It is essential for individuals to strive to improve their credit scores prior to applying for a loan as it will give them an upper hand.
Property location and value - The area where a property is situated and its value also influence the interest rate on home loan. Houses in close proximity to good amenities such as grocery stores, shopping centres, bus stops, hospitals, schools etc. tend to have a higher value than those with few amenities and poor connectivity. Home loans availed for properties with poor amenities tend to carry a higher risk for the lender since their resale will be difficult.
The same is applicable to the age of the building. Newer properties are considered more lucrative. So, if an individual is buying a property that is old and not in an up-and-coming neighbourhood, chances are the applicant will be asked to pay a higher rate of interest.
| Loan Slab | Home Loan Interest Rates (% p.a.) |
|---|---|
| For Women (up to 30 Lakhs) | 8.55 to 9.05 |
| For Others (up to 30 Lakhs) | 8.60 to 9.10 |
| For Women (30.01 Lakhs to 75 Lakhs) | 8.80 to 9.30 |
| For Others (30.01 Lakhs to 75 Lakhs) | 8.85 to 9.35 |
| For Women (75.01 Lakhs & Above) | 8.85 to 9.35 |
| For Others (75.01 Lakhs & Above) | 8.90 to 9.40 |
Source: HDFC
| Revised Interest Rate | Salaried Borrowers (%) | Non-Salaried Borrowers (%) |
|---|---|---|
| Women, LTV ≤ 80 | 1 Year MCLR+ 10 bps, ER:8.35 | 1 Year MCLR+ 25 bps, ER:8.50 |
| Women, LTV > 80 and ≤ 90 | 1 Year MCLR+ 20 bps, ER:8.45 | 1 Year MCLR+ 35 bps, ER:8.60 |
| Other, LTV ≤ 80 | 1 Year MCLR+ 15 bps, ER:8.40 | 1 Year MCLR+ 30 bps, ER:8.55 |
| Other, LTV > 80 and ≤ 90 | 1 Year MCLR+ 25 bps, ER:8.50 | 1 Year MCLR+ 40 bps, ER:8.65 |
| Revised Interest Rate | Salaried Borrowers (%) | Non-Salaried Borrowers (%) |
|---|---|---|
| Women, RG-1, 2 ,3 | 1 Year MCLR+ 35 bps, ER:8.60 | 1 Year MCLR+ 50 bps, ER:8.75 |
| Women, RG-4, 5, 6 | 1 Year MCLR+ 45 bps, ER:8.70 | 1 Year MCLR+ 60 bps, ER:8.85 |
| Other, RG-1, 2, 3 | 1 Year MCLR+ 40 bps, ER:8.65 | 1 Year MCLR+ 55 bps, ER:8.80 |
| Other, RG-4, 5, 6 | 1 Year MCLR+ 50 bps, ER:8.75 | 1 Year MCLR+ 65 bps, ER:8.90 |
Source: SBI
| Type | Loan Amount | MCLR + Mark Up | Effective Rate of Interest |
|---|---|---|---|
| Floating Rate | Loan amount up to Rs. 30 Lakhs | MCLR + 0.30% | 8.90% p.a. |
| Floating Rate | Loan amount up to Rs 75 Lakhs | MCLR + 0.45% | 9.05% p.a. |
| Floating Rate | Loan amount above Rs 75 Lakhs | MCLR + 0.50% | 9.10% p.a. |
| Floating Rate | Top Up for existing customers | Up to 30% - Same rate at which the home loan is running 30%-100% - LAP rate shall be applicable | Up to 30% - Same rate at which the home loan is running 30%-100% - LAP rate shall be applicable |
| Fixed rate (for 20 years) | All Loan Amounts | - | 12.00% |
Source: Axis Bank
Which documents have to be submitted when applying for a home loan?
The documents required when applying for a home loan will vary from one lending institution to another. Some of the common documents that lenders insist on include address proof, identity proof and income proof.
What is floating rate of interest in home loan?
Loans in case of floating rate of interest are linked to benchmark rate. So, when the lender raises or brings down the benchmark rate, the rates of the loans shall fluctuate. Accordingly, the EMI or loan tenure will increase or decrease.
What is a fixed rate of interest in home loan?
A fixed rate of interest would mean that the interest rate of the loan would remain constant throughout the loan period and therefore, the EMI of the loan would remain fixed.
What are the tax benefits available on interest portion of home loan?
Under Section 24 of the Income Tax Act, individuals can claim a tax deduction of up to a maximum of Rs. 2 lakhs on the interest paid. Additionally, under Section 80EE, an additional tax deduction can be claimed by first-time home buyers up to Rs. 50,000 per financial year on the interest portion.
What factors determine home loan eligibility?
Banks and other financial institutions take a number of factors into consideration while determining a borrower's eligibility for a home loan. Some of the elements considered include the applicant's age, credit score, occupation, minimum income and property value, among others.
Who can be joint borrowers of a home loan?
Immediate family members like spouse, parents and children are generally allowed to be joint borrowers of a home loan.
What happens if an individual defaults on payments?
Banks may levy a late-payment fee when an individual is not able to keep up with the EMI payments. However, in the event that the borrower is unable to repay back the loan, the bank will have the right to auction the property to cover losses.
Does the tenure impact the loan cost?
Longer the loan duration, the lower will be the EMI, but higher would be the interest outgo. In case of shorter loan tenures, one pays a greater EMI, but since the loan gets repaid sooner, the borrower ends up paying less by way of interest.
Will MCLR be different among banks?
Yes, MCLR can be different among different banks given that it depends on the marginal cost of funds, operating costs, negative carry on account of CRR and tenor premium of respective lenders.
Are securities necessary for home loans?
The property being purchased becomes the collateral and is mortgaged to the lender until the entire loan amount is repaid. In some cases, additional security like FD receipts, life insurance policies and share or savings certificates may be required.
