Things you must know about home loans!

There are many different companies that are providing home loans. There are many different offers and features. How do you decide what loan you should go in for? To help you answer that, here are a few things you might want to consider….

Best way to compare offers: Go to the different institutions providing housing loans and ask them to calculate and give you the “net” amount of money you will have to pay over 10-Yrs and the “net” amount of money you will have to pay over 20-Yrs. When we say “net” we mean that the money includes everything, the administration, processing and all other possible fees. Note all the different rates that all the different organizations give. This will give you the best idea about the different rates. 

You will also have to choose between a 10-Yr or 20-Yr loan. A 20-Yr loan will mean lower EMI (equal monthly installments) but probably a higher interest rate. In the long run, you'll be paying more for your house because you will be making more interest payments.

With a 10-year loan, the EMI will be higher but the interest rate lower; thus you'll pay less for your house because it will be paid off in a shorter period of time. You will have to decide what suites your needs.

Find out about “processing fees”, “administration charges” and the “quantum of loan”. Get each institution to provide you with a written statement of all fees. Then, ask to reduce one or more of the fees. Use the lowest fees you to negotiate with other institutions. (Don’t be shy. Seriously!) You must negotiate. 

If a sales person asks you to include false information on your home loan application to get quick approval, do not agree to this. Also don’t get confused into borrowing more money than you need or can afford.

A lot of Income Tax savings are possible with home loans. The Income Tax saved can be used to pay the EMI. So do not loose out on the income tax saving oppertunities.  

Ideally, you should choose the bank which does not require a "guarantor" and offers home loans without "pre-payment penalty" (or a penalty for repaying loan before it is due). This helps you re-pay your loan as early as possible.

The following documents will be required if you approach an institution with a home loan request. Try to take these documents along with you. If you show them that you are a serious buyer, they are more likely to be open to negotiations:

If you are a Salaried Employee:

  1. The latest salary slip showing statutory deductions
  2. Form 16 (showing tax deducted at source by employer)
  3. Proof of age (birth certificate/voter identity card/passport/school-leaving certificate/valid driving licence)
  4. Proof of residence (phone bill/electricity bill/ration card)


If you are Self-employed:

  1. Computation of income for the previous two years, certified by a Chartered Accountant
  2. Profit & Loss Account and Balance Sheet for the previous two years, certified by a Chartered Accountant
  3. Proof of age (birth certificate/voter identity card/passport/school-leaving certificate/valid driving licence)
  4. Proof of residence (phone bill/electricity bill/ration card)

Choosing "fixed" or "floating" interest rate!

Just incase you are not sure about what these mean, let us explain them first. A "fixed" rate would be a rate that would be set right at the beginning when you apply for the loan. Suppose you apply for the loan and choose a “pure fixed” rate, then if the rate of interest is 9% at the time of application, it will remain 9% for the complete period of the loan.

This could be good if the interest rates increase during the period for which you are paying the loan. This could be bad if the interest rates reduce during the period for which you are paying the loan. But, if you want a safe option, then you should go for this.

However, there is another version of “fixed” interest rates. These are “semi fixed”. This means that the interest rates remain the same for 3 or 5 years. And at the end of every 3 or 5 years, the interest rates are changed again. If you decide to go in for “fixed” rates, be very clear about the kind of “fixed” rates you are choosing.

In the case of “floating” interest rates, the interest rates change depending on basis of some other external interest rate. For example, some banks decide the “floating” interest rate on basis of their fixed deposit interest rate. And the fixed deposit interest rate generally depends on the market.

However, in some banks, the “floating” rate may depend on some "internal interest rate" that is not market dependent. This is as good as a “fixed” interest rate. It will just give an impression of a “floating” rate. So, make sure you know what the “floating” rate is dependent on, when you go for it.

Now a days, some banks even allow you to split your loan amount and pay part of it on the “fixed” and the other part on basis of the “floating” rate. Ask about this. Also ask whether there is a way to switch from “fixed” to “floating” interest rates in the middle of the tenure. If that is possible, you should be constantly vigilant of changes and make switches appropriately for getting the best rate!

Basically, the choice of “fixed” or “floating” rate depends on your situation and how much risk you can take.


Keep these few things in mind. If you are not clear about the procedure of taking a loan, do not worry about that. Just go to a institution, and tell them you want a home loan, they will be more than happy to tell you everything you want to know!

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Table Of Contents

  1. How to buy a flat? - Intro
  2. Choosing your flat! - Location
  3.       >> Functionality
  4.       >> Quality of construction..
  5. About home loans!
  6. Legal problems with land!!
  7. Actual procedure....