Home Loan Essentials: Rates, Terms, and Approval Process

If you have an eye on a particular real estate property or are preparing to buy your dream home, you might consider getting a home loan. Navigating the banking landscape to take out a home loan can seem tricky even to the experienced. Each bank has its own loan approval process. However, the home loan process is simpler than it seems. 

Here is a detailed look into the essential components of a home loan that you need to calculate home loan EMI before applying for the loan.

Understanding Home Loan Rates

The first thing you consider when applying for a home loan is the home loan interest rate. The interest rate is the amount the lender charges the borrower for using the principal. While calculating the home loan, the interest rate plays the most crucial role. There are two types of interest rates:

• Fixed Interest Rate

A fixed home loan interest rate remains the same throughout the loan tenure. It is not subject to market fluctuations and helps you pay consistent EMI throughout the life of the loan. Fixed interest rates are generally higher than current floating interest rates. Borrowers usually opt for fixed interest rates when they are particularly low, locking an amount that is beneficial for them in the coming years.

• Floating Interest Rate

A floating home loan interest rate is subject to market fluctuations. It rises and falls according to the market. If you opt for a floating rate, you must pay a base interest rate ( a minimum rate fixed by the lender) to which the adjustable rate is added. A floating interest rate, also called a variable or adjustable rate, is written as ‘plus 3%’, referring to the base rate. Borrowers choose a floating interest rate most often when the market interest rate is expected to fall in the future. 

What are Home Loan Terms?

When we say loan terms, we usually mean the essential components of a home loan that determine the final loan amount. It includes the interest rate, EMIs, loan tenure, and other factors. If you want to calculate home loan EMI before applying for the loan, you will need to consider these components.

• Loan Principal

The loan principal refers to the total loan amount you need to repay the lender at the start of the loan term. It is the initial sum of money that you borrowed from the lender. As you repay the loan, the principal may be called the outstanding loan amount. If you want to calculate home loan EMI, you must have the principal amount, loan tenure, and interest rate. 

• Loan Tenure

It refers to the duration over which you repay your home loan. Home loans typically have a loan term of 15, 20 and 30 years. However, the period may differ depending on the lender, the loan amount, and other loan factors, such as the home loan interest rate, principal, or the EMI. 

• Loan EMI

EMI, or equated monthly installment, refers to the amount you must repay the lender each month. The longer your loan term, the lower your EMIs and vice versa. Regarding interest rates, the higher your interest rate, the more the EMI. 

At the start of repayment, most of the EMI goes towards repaying the interest rate. As time goes by, the majority of the EMI goes into paying the principal amount. To calculate home loan EMI, you must have the total loan amount and the interest rate. Your EMI will change as you increase or decrease the interest rate and the loan tenure.

• Other Charges

The lender charges various other fees while giving you a home loan. The fees can differ from lender to lender. You need to pay three main fees on top of your principal amount and interest: legal and government fees, loan-related fees, and document-related fees. Some of the most common charges you may have already heard of include pre-payment charges, insurance premiums, late payment fees, NOC charges, CERSAI charges, and so on.

A lender has various loan terms and conditions you should always go through before agreeing to take out the loan. You should also consider the hidden charges banks, NBFCs, and other lenders may charge you, which could significantly increase your principal.

Loan Approval Process

The loan approval process is the most important part of applying for a home loan. Once you have completed the home loan application form, attached all required documents, and paid the processing fee, the bank starts the loan approval process. 

The approval process depends on your eligibility for the loan. For this, the bank will check these aspects of your application:

• Your age, experience, and qualifications.
• Your credit score, history, and creditworthiness.
• All the transactions you have made with the bank.
• Your annual and monthly income.
• Your employment status, job type, and other details.
• If you are self-employed, then the nature of your business.
• Your ability to repay the loan – based on the set interest rate.

After thoroughly checking all submitted documents, the bank decides whether you pass all the eligibility requirements. If you do, the bank will communicate the maximum loan it can provide. If you have a good credit score, satisfactory credit history, and income capability to repay the loan, the bank might even offer you a favorable home loan interest rate. 

If the loan is approved, the bank will offer a sanction letter containing details about the loan, such as the principal amount, interest rate, type of interest rate, loan tenure, etc. After you sign the loan offer, the bank conducts all legal formalities, finally disbursing your loan. 

Conclusion

Securing a home loan involves understanding all loan terms, interest rates, and the complete approval process to make informed decisions that align with your financial goals. Before applying for a home loan, always check the lender’s eligibility requirements, calculate home loan EMI to understand your home loan details, and then apply for the loan. To guarantee a loan, research, ask questions, and seek professional guidance to ensure a smooth and successful home loan journey. 

Frequently Asked Questions

• What is the maximum and minimum tenure of a home loan?

The duration of the loan can differ from lender to lender. However, a loan tenure of 2 years is generally the minimum, while 30 years is the maximum. 

• How many times can I take a home loan?

You can take a home loan as many times as needed. However, repaying a loan before applying for another is best since repeated applications can negatively affect your credit report.

• Can we increase the tenure of the home loan?

Yes, you can change the tenure of your loan at any time during the course of loan repayment. Visit the bank or the lender and apply for the same. It should be noted that increasing the tenure will lead to increased interest repayment in the long term.