Buying a house can be both fulfilling and frustrating endeavor. While buying a home is the ultimate dream, the financial processes and paper work involved is tedious and confusing. Some of the terms for simplifying loans one should have an understanding of regarding home loans are
As per RBI, there is a ceiling limit on the home loans sanctioned by the bank to 80%, the other 20% which is paid by you is called down payment. For example, if you are buying a house worth 50 lakhs, the bank can sanction a maximum amount of 40 lakhs and the rest 10 lakhs will be the down payment amount. For priority sector, this limit can go upto 90% of the total amount.
The amount to be paid back to the lending institution every month is called EMI- equated monthly installment. This consists of both the principal and the interest. Check our EMI calculator to more understanding.
Fixed Interest Rate
Fixed Interest rate is when the buyer opts to make repayments in fixed monthly installments over the entire tenure of the loan. A fixed interest rate can be fixed for the entire tenure of the loan or for a fixed number of years. This needs to be cross checked with the lending institution. The down side of fixed interest rate is that it is usually higher than floating interest rate. Also if the interest rate dip, the borrower will not get any advantage of the lower rates of interest
Floating Interest Rate
Floating interest rate changes according to the prevailing market conditions. These interest rates are based on the base rate of the lending institution and if there is a change in base rate, the interest rate would change accordingly.
It is the process of transferring your loan from one lending institution to the other. The advantages usually are to benefit from the differential interest rates offered by different lenders from time to time.