Have you not been impulsive with a call that you received one lazy afternoon, a sweet voice from the other end offering you, wella Home loan at lower interest rates. If you think applying for housing finance is as simple as shopping in a mall, as portrayed on the tube, you are grossly mistaken.
Here are a few basics that you should arm yourself with hitherto applying for the best home loan that suits you.
Interest
Interest on home loan is a sum of money that you pay over and above the actual cost of your house and the processing fee. Housing loan interest rate is a key element which acts as the deciding factor to narrow down on the institution or bank you apply a loan for.
Rate of interest, the tenure of your loan and the total loan amount forms the basis on which your EMI is factored. A thumb rule which everyone must bear in mind while selecting from various EMI options. The lower the interest rate, the lower is the EMI amount and vice-versa.
Yes, you got it right! A bank with low interest rate will be instrumental in increasing your savings each month.
But hold on!!!
Selecting a housing finance scheme merely on the basis of higher/lower rate of interest is not the most prudent thing to do. There certainly are many more factors that weigh in.
There are two types of home loan interest rates.
Fixed rate of interest- the name says it all, you pay the same amount as EMI for the entire duration of the loan that was agreed upon.
Floating rate of interest- this type of interest rate depends on the banks benchmarked rate. The changes in this rate are at the discretion of the bank/financial institution from which you have availed your home loan.
Another aspect of calculating the EMI that one must be cognizant of is the 2 systems.
Flat rate In this system, the interest rate on the amount of loan is calculated over the entire tenure of the loan, the interest and the principal is divided across the number of your EMI installment. This type of EMIs on home loan is the costliest as you will recognize that the interest is calculated on the full amount and no deduction in the principal amount is considered.
Reducing balance method-in this case, the interest is levied on the remaining balance of the home loan, which goes on dipping.
Here are a few basics that you should arm yourself with hitherto applying for the best home loan that suits you.
Interest
Interest on home loan is a sum of money that you pay over and above the actual cost of your house and the processing fee. Housing loan interest rate is a key element which acts as the deciding factor to narrow down on the institution or bank you apply a loan for.
Rate of interest, the tenure of your loan and the total loan amount forms the basis on which your EMI is factored. A thumb rule which everyone must bear in mind while selecting from various EMI options. The lower the interest rate, the lower is the EMI amount and vice-versa.
Yes, you got it right! A bank with low interest rate will be instrumental in increasing your savings each month.
But hold on!!!
Selecting a housing finance scheme merely on the basis of higher/lower rate of interest is not the most prudent thing to do. There certainly are many more factors that weigh in.
There are two types of home loan interest rates.
Fixed rate of interest- the name says it all, you pay the same amount as EMI for the entire duration of the loan that was agreed upon.
Floating rate of interest- this type of interest rate depends on the banks benchmarked rate. The changes in this rate are at the discretion of the bank/financial institution from which you have availed your home loan.
Another aspect of calculating the EMI that one must be cognizant of is the 2 systems.
Flat rate In this system, the interest rate on the amount of loan is calculated over the entire tenure of the loan, the interest and the principal is divided across the number of your EMI installment. This type of EMIs on home loan is the costliest as you will recognize that the interest is calculated on the full amount and no deduction in the principal amount is considered.
Reducing balance method-in this case, the interest is levied on the remaining balance of the home loan, which goes on dipping.
Source...