“A prudent question is one-half of the wisdom.”
1. For what purpose can I apply for a home loan?
You can usually ask for 1st time loan for getting a house or a flat, renovation, extension and repairs to your existing house. Different banks have different policies for people who are buying a second house. Take care of above mention issues like purpose of buying, 2nd property when opting for loan in banks/financial institutes.
2. On what factors will bank decide your eligibility?
One of the most important factor taken into consideration is your repayment capacity. Your repayment capability relies on your monthly disposable / surplus financial gain, (which successively relies on factors like total monthly financial gain / surplus less monthly expenses) and alternative factors like spouse’s financial gain, assets, liabilities, stability of financial gain etc. the most concern of the bank is to form certain that you simply will repay the loan on time. Usually a bank assumes that concerning 50-60 % of your monthly disposable / surplus financial gain is accessible for compensation of loan. However, some banks calculate the financial gain offered for EMI payments on individual’s gross financial gain and not on income.
The amount of loan financial institution can give depends on:
- Past history
- Financial background
3. Hey I am new to these things!! Whats an EMI?
You repay the loan in Equated Monthly Installments (EMIs) comprising each principal and interest. compensation by manner of EMI starts from the month following the month within which you are taking full disbursement.
EMI can be calculated by using
EMI = Loan amount x rpm x (1+pm) (1+pm) - rpm= interest per month (rate of interest per year/12) - n= number of installments
There are various EMI calculator available online like http://www.icicibank.com/calculator/home-loan-emi-calculator.page . Use that and try to apply for loan accordingly.
4. Documents required for home loans in India:
In addition to any or all legal documents about the house being bought, banks will ask you to submit Identity and Residence Proof, latest remuneration slip ( attested by the competent authorities and self authenticated by employers ) and Form sixteen ( for business persons/ freelance ) and last half-dozen months bank statements / record, as applicable . You furthermore got to submit the finished form along side your photograph. Loan applications type would provides a list of documents to be connected with the applying.
Do not hurry to seal the deal quickly.
Please do discuss and ask for any info on waivers in terms and conditions provided by the bank in this regard. As an example some banks put into effect submission of life assurance Policies of the receiver / sponsor adequate to the loan quantity appointed in favor of the bank. Finely read bank’s schemes and ask them for clarification if any.
5. Different interest rates options available?
Banks usually supply either of the subsequent loan options: Glued/Fixed Rate Home Loans and
Floating Rate Home Loans.
Properties of Fixed Rate Home Loans:
- ROI(Rate of interest) is fixed.
- ROI which is fixed can either be for entire tenure or for certain part of tenure of loan.
- Therefore, EMI of fixed rate home loans is known.
- Cash Outflow can be fixed.
- If inflation goes high your interest rate does not.
Properties of Floating Rate Home Loans:
- Changes in ROI depending on market interest rates.
- Made of 2 parts index and spread. Index is measure of interest rates based on government securities. Spread is an extra amount bank adds to cover credit risk, profit mark-up etc.
- Amount of spread matters. It differs from lender to lender.
- Sometimes if interest rate increases based on market conditions EMI will not increase instead number of EMI’s increases.
- If market conditions are favorable EMI decreases.
6. What’s monthly reducing balances method?
On Monthly Basis interest is calculated on the outstanding principal balance for that month. In Annual resets, the principal is adjusted at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.
Now that you have most important questions answered in part II we will answer more detailed questions. Tune in next week for Part II.