Legal Advice

A home loan is a loan taken for buying or constructing a home or to make improvements to a residential property. You can get a loan from from banks and registered housing finance companies.

Your home loan is secured against the property that you buy. This means that in case you are unable to repay the loan, the lending bank will have the right to take possession of your home.

Q1. What are the types of Home loans available?

Ans.: The following different kinds of home loans are available:

  • Home Purchase Loan
    A common type of loan taken for purchasing a home.
  • Home Improvement Loan
    A loan given for implementing repair works and renovations at home.
  • Home Construction Loan
    A loan available for the construction of a new home.
  • Home Extension Loan
    Home extension loans are given for expanding or extending an existing home. For example, addition of an extra room, etc.
  • Land Purchase Loan
    This type of loan is sanctioned for purchase of a land, for both home construction or investment purposes.
  • Balance Transfer Loan
    This loans help you pay off an existing home loan with a higher interest rate, and avail of a loan with a lower rate of interest.
  • Refinance Loan
    This loan helps you pay off the debt you may have incurred from private sources such as relatives and friends in order to purchase your present home.
  • Loans for NRIs
    This loan is tailored to suit the requirements of NRIs who wish to build or buy a home in India.

Q2. What is an EMI?

Ans.: EMI (Equated Monthly Installment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of a portion of the interest as well as the principal.

Q3. What are the eligibility conditions for a home loan?

Ans.: To qualify for a home loan, most of the lending institutions in India require you to be:

  • An Indian resident or NRI
  • Above 24 years of age at the commencement of the loan
  • Below 60 or retirement age when the loan matures
  • Either self employed or salaried

Q4. What are the interest rates offered for home loans? What are: Daily Reducing, Monthly Reducing and Yearly Reducing?

Ans.: Interest rates are different from institution to institution and generally range from about 8.75% 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.

  • Annual reducing: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.
  • Monthly reducing:In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
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