India is one of the largest markets for home loans globally. Housing credit has seen glowing reception in recent years amongst all scales of borrowers. In the light of recent government initiatives such as Pradhan Mantri Awas Yojana (PMAY), borrowers are categorically encouraged to avail home loans at affordable EMIs. You can calculate your loan obligation using a loan EMI calculator. In the Financial Year 2018-19, the housing loan segment has witnessed a growth of 16%.
A Quick Look into Home Loans in India
- 10% - home loan sector’s contribution to the GDP.
- Reports suggest a CAGR of 17 – 19% in housing credit can be expected in the current Financial Year.
- The government declared an increase in funding from Rs. 20,000 Crore to Rs. 30,000 Crore for the National Housing Bank (NHB).
- Financial institutions will receive Rs. 20,000 Crore as funding from the NHB.
- India’s repo rate slashed by 25 bps to 5.15%.
Regardless, before availing a home loan, you should develop a plan which will allow you to be financially stable yourself when paying EMIs across a significant tenure.
5 Easy Steps to Plan Your EMIs
Equated Monthly Instalments (EMIs) are a substantial addition to your monthly expenses. It can dent your financial standing if you do not proceed carefully when availing a loan. In most cases, if you already have existing debt, lenders prescribe you to opt for an EMI option which will be no more than 40% of your income. You should check your installment figures using an EMI calculator with differing credit variables. There are several benefits of calculating EMIs before taking a home loan such as avoiding any financial strain.
Here are a few steps which will let you ideally plan your EMI before availing your loan –
Check the Eligibility Criteria
Firstly, you should check the home loan eligibility criteria as stipulated by different financial institutions. If you meet the eligibility criteria, you have an opportunity to negotiate with your lender to bring the EMI down by lowering the interest rate. Satisfying all the eligibility criteria would also ensure faster approval of your home loan.Check Your Credit Score
The first thing lenders will note about you is your credit score. The score determines your creditworthiness as a borrower and accounts for factors like your payment history, credit history, etc. Most financial institutions prefer a score above 750 which reflects stable financial standing and rich credit history.How credit score can determine your EMI is through its quantitative representation of you as a borrower. If you have a healthy credit score, it would be easier for you to avail lower EMIs due to reduced interest rates. In such a case, financial institutions consider you as an asset who will make timely repayments across the tenure.
LTV
The loan-to-value ratio is the percentage of your prospective property’s value which the lender will sanction as a loan. According to the RBI mandate, if the property value is below Rs. 30 Lakh, then the LTV is up to 90%. Similarly, if the property value is Rs. 30 Lakh to Rs. 75 Lakh, the LTV is 80%, so on and so forth.Before availing a home loan, consider your property value and how much you can afford as a down payment. If you have substantial savings and can afford to pay a larger down payment than is required, your EMI can significantly reduce.
Repayment Tenure
Exercise careful consideration when opting for a certain repayment tenure. While a longer tenure can lower your EMIs, a shorter period ensures you pay less towards interest. Calculate the EMIs you would have to pay on different repayment tenures using an EMI calculator. Consecutively, assess your financial standing to determine which would be more suitable.Interest Rates
Lastly, choose the type of home loan interest rates – fixed and floating. Fixed interest rates on home loans are comparatively higher than floating rates. On the other hand, floating rates vary with the market and economic condition. Assess the current economic condition and determine if floating rates could increase in the future. Accordingly, decide which interest type would be more suitable to your financial standing and future market conditions.Repaying a home loan is a lengthy financial commitment and can strain you monetarily if the installment factor is not duly considered before availing a loan. Utilize an EMI calculator to determine a convenient installment figure quickly.
