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Equal
Monthly Installment (EMI)
Loan repayments are usually in Equal Monthly Installments
over the tenure of the loan. Some banks also offer a Variable
Installment Scheme were in repayments are higher in the beginning
of the loan period. This is beneficial for those individuals
who are trying to maximise their tax breaks in the initial
years and expect future tax breaks to fall.
Fixed / Floating Rate
Under a floating rate loan, the interest rate on the loan
varies from time to time depending on the Prime Lending Rate
fixed by the Reserve Bank. This change can happen as frequently
as one in six months. If the PLR falls, you benefit as the
effective interest rate on your remaining loan falls. However,
your payments every month stay the same. The Finance Company
will refund some of your EMI cheques and effectively compensates
you by reducing the tenure of the loan. The reverse happens
if the PLR rises, much to your disadvantage.
Choosing Between Fixed and Floating loans
In the last 2-3 years the PLR has fallen as the Indian economy
had slowed down and demand for money was low. If you expect
this trend to continue, you stand to benefit from a floating
rate loan. If interest rates begin to rise again, you can
prepay your floating rate loan and lock in to fixed rate loan.
You must them choose a floating rate loan with no repayment
charges (one is offered by HSBC). However, if you do not want
to speculate on interest rates and need a stable loan to help
planning the future, then go for a Fixed rate loan.
Rest
Interest rates are quotes on a daily rest, monthly rest or
annual rest basis. The annual rest quote implies that the
company gives you the credit for the monthly principal repayments
only at the end of each year. Such loans are therefore more
expensive than a monthly /daily rest loan. The shorter the
tenure of the loan, the greater the effective interest rate
difference will be. AbodesIndia.com has standardised all interest
rate quotes from companies on a MONTHLY REST basis ( rates
will therefore look different from Company brochure quotes
which maybe on a annual rest basis) .
Processing Fee
A one time fee which is normally non-refundable and payable
along with your initial loan application. Rates can vary from
1-2% of the loan amount.
Administrative Fee
A one time fee which is normally non-refundable and payable
before your loan is disbused. Rates can vary from 1-2% of
the loan amount.
Commitment Fees
This interest is charged if you do not draw the sanctioned
loan within a period of 6-9 months. The rate of interest is
usually about 1-2% a months.
Interest Tax
Housing Finance companies have to pay a tax on the interest
income they receive from you. They sometimes pass this on
to the customer. Always check with the company if the interest
rate they are quoting includes interest tax or not. This tax
normally about 2% of the interest rate charged. E.g if the
interet rate quoted is 14% then the actual interest rate including
interest tax is about 14.28%. This website has standardised
all rates AFTER Interest Tax, on a monthly rest basis to aid
comparison across companies.This rate is called the Effective
rate.
Prepayment Charge
Most Housing Finance companies charge a fee for prepaying
your loan before its full tenure is over. This helps them
plan their finances, at your expense. Your earning capacity
will normally increase with age and a prepayment fee can be
a big cost. This fee also limits your ability to refinance
the loan if interest rates fall after a few years. The fee
is normally in the range of 1-2% of the prepaid amount.
Refinance Charge
Some Housing Finance companies do not charge you for prepayments
from your own savings. However, if you retire a loan using
money borrowed from another Finance Company, you will have
to pay a Refinance charge of 1-2% of the loan outstanding.
Down payment
Housing finance companies would normally give a loan up to
80-85% of the value of the property. The remaining amount
would have to paid by the buyer (to the seller), as a down
payment before the he draws on the loan.
Tenure of the loan
Normally, loans are given for a period of 1-15 years. Some
companies also give loans upto 20 years at an additional interest
cost of 0.25% -0.5%. Most companies do not allow loans for
a fraction of a year.
Different Banks Will have Differnet Rate of interst for personal
loan , home loan , Educational Loan , Business loan. What
You Need to do is Just select best option which is suitable
to you , no of years for loan duration.
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