2 min read
10 April 2023

A home loan is a secured loan that is obtained to purchase a property by offering it as collateral. Home loans offer high-value funding at economical interest rates and for long tenures. They are repaid through EMIs. After repayment, the property’s title is transferred back to the borrower.

A home loan is a type of loan provided by banks, financial institutions, and Non-Banking Financial Companies (NBFCs) to help individuals purchase a residential property. In India, home loans have become increasingly popular in recent years, given the significant rise in property prices and the increasing demand for affordable housing.

Home loans are a long-term financial commitment and therefore require careful consideration before making a decision. In India, there are various types of home loans available, such as fixed-rate home loans, floating-rate home loans, and hybrid home loans.

Types of home loan based on the interest rate

Fixed-rate based home loan

A fixed-rate home loan is a loan where the interest rate remains the same throughout the loan tenure. This type of loan is preferred by those who want to avoid fluctuations in interest rates and prefer the stability of a fixed repayment amount.

Floating rate based home loan

On the other hand, floating-rate home loans have an interest rate that fluctuates based on market conditions. This type of loan is preferred by those who are willing to take on the risk of interest rate fluctuations in exchange for the possibility of lower interest rates.

Hybrid home loan

Hybrid home loans are a combination of fixed and floating interest rates, where the interest rate remains fixed for a certain period and then switches to a floating interest rate for the rest of the loan tenure. This type of loan is preferred by those who want the stability of a fixed interest rate for a certain period and then switch to a floating interest rate.

The eligibility criteria for availing a home loan in India vary from lender to lender. However, some of the common criteria include age, income, credit score, employment history, and the value of the property. Most lenders require the borrower to be at least 21 years old and have a stable source of income.

Before applying for a home loan, it is essential to evaluate your repayment capacity and determine the loan amount you can comfortably repay. Many lenders offer online calculators to help borrowers determine their loan eligibility and the amount of the EMI they will have to pay.

The interest rates on home loans in India vary depending on the lender, loan amount, and loan tenure. Generally, interest rates on home loans in India range from 6.65% to 9%. It is important to compare the interest rates offered by different lenders and choose the one that suits your financial needs.

The loan tenure for home loans in India ranges from 5 years to 30 years, depending on the lender and the borrower's repayment capacity. The longer the loan tenure, the lower the EMI, but the higher the overall interest paid. It is important to choose a loan tenure that suits your repayment capacity and financial goals.

In addition to interest rates, there are various other charges associated with home loans in India, such as processing fees, prepayment charges, and foreclosure charges. Processing fees are charged by lenders to cover the cost of processing the loan application. Prepayment charges are charged by lenders if the borrower chooses to prepay the loan before the end of the loan tenure. Foreclosure charges are charged by lenders if the borrower chooses to foreclose the loan before the end of the loan tenure.

In India, a home loan is a popular way for people to finance the purchase of their dream home. The process of availing a home loan in India involves several steps, including applying for the loan, submitting the required documents, and getting the loan sanctioned.

The Indian government offers various tax benefits on home loans, such as deduction on the principal amount repaid, deduction on the interest paid, and deduction on stamp duty and registration charges. These tax benefits can significantly reduce the overall cost of the home loan.

The lender possesses the legal rights to recover the outstanding loan amount by the sale of the property in question in case the borrower cannot repay the dues.

5 important terms about home loan

Here are five important terms related to home loans in India:

1. Equated Monthly Instalment (EMI): EMI refers to the fixed monthly payment that a borrower needs to make to repay their home loan. It comprises both the principal amount and the interest component, spread over the loan tenure. The EMI amount remains constant throughout the loan repayment period, although the interest and principal portions change over time.

2. Loan-to-Value (LTV) Ratio: The Loan-to-Value ratio is the proportion of the loan amount that a lender is willing to provide in relation to the property's appraised value. It represents the percentage of the property's value that can be financed through a home loan. The LTV ratio varies based on factors such as the borrower's creditworthiness, the property type, and the loan amount.

3. Fixed Interest Rate: A fixed interest rate is a type of home loan interest rate that remains constant throughout the loan tenure. It provides borrowers with certainty regarding their monthly repayment amounts, as the interest rate does not fluctuate with market conditions. However, fixed-rate home loans often have higher interest rates compared to floating-rate loans.

4. Prepayment: Prepayment refers to the option of repaying the home loan partially or in full before the scheduled tenure. Borrowers have the flexibility to make prepayments to reduce the outstanding principal amount, which can help save on interest costs and shorten the loan tenure. However, lenders may impose certain prepayment charges or penalties, so it's essential to review the terms and conditions before making prepayments.

5. Credit Score: A credit score is a numerical representation of a borrower's creditworthiness. It is calculated based on various factors such as repayment history, credit utilisation, length of credit history, and types of credit accounts. Lenders assess an individual's credit score to determine their eligibility for a home loan and the interest rate offered. A higher credit score indicates a lower credit risk and improves the chances of getting favourable loan terms.

These terms are crucial to understand when dealing with home loans in India and having a clear understanding of them can help borrowers make informed decisions about their home loan choices.

Types of home loan based on the purpose

  • Home purchase loan: Taken to purchase a home.
  • Home improvement loan: Taken to repair/ renovate a home.
  • Home construction loan: Taken to build a new house.
  • Land purchase loan: Taken to buy a plot of land for constructing his/ her own house.
  • Home extension loan: Taken to add another floor, room, garage, bathroom, or kitchen, etc.
  • Joint home loan: Taken by two or more people, for instance, spouses.
  • Home loan balance transfer: Allows you to switch lenders and transfer your outstanding loan amount to enjoy better terms and conditions and lower interest outgo.
  • Top-up home loan: Allows you to borrow funds over and above the outstanding loan amount at nominal rates and for any purpose. 

If you are looking for a home loan, familiarise yourself with the tips to get your home loan approved instantly and then fill out the online home loan application form. In case of loan applications made offline, you can drop by at the nearest branch in your city or call us for more details.

Also Read: How to apply for a Home Loan?

Frequently asked questions

What are benefits of home loan?

Home loans offer numerous advantages, including the opportunity to own a home with a lower initial cost, tax benefits, low-interest rates, flexible repayment options, and the potential for property appreciation and wealth building. They provide financial stability, access to property value, and may improve creditworthiness. However, borrowers should also be aware of their responsibilities and potential risks associated with home loans.

Is property loan and home loan the same?

A home loan is a type of property loan used to buy a residential property, primarily for personal use. Property loans are a broader category encompassing loans for various types of real estate, including residential and commercial properties, land purchase, and real estate investments. Home loans are a specific subset of property loans.