Who doesn’t want to have a home of their own? Factually every other person wants it. Having a home is a dream for everyone. Planning is the core and other things surround it. So now that you’ve decided to have a home, we want to have a little contribution to planning your journey.Nevertheless, to have a home, the first intelligent move will be planning a home loan. A home loan is an amount you borrow from any money lending firm, for instance, a bank. The amount that is borrowed have a certain rate of interest and is to be paid monthly in EMI or Equated Monthly Installment.
However, some of us still think that an EMI is an amount which is informally levied by the banks. However, this isn’t true. An EMI is a well planned and working phenomena for repayment of the loan. It depends on many factors like:
1) Principal borrowed
2) Rate of interest
3) Tenure of the loan
4) A monthly/annual resting period
The amount that is paid is the mix of interest and the principal amount. If the loan is ‘fixed interest loan’ the rate of interest remains fixed for the initial few years and then it will be variable.If the loan is on variable basis which is very common now a days, then your interest will be linked to banks MCLR (marginal cost of funds based lending rate) throughout the period of loan.
According to Budwisefunds, there are two very important things to be considered while calculating the EMI i.e. the Time Period (Years) and the interest Rate.
The Home loan amount, the time period and interest rate, together decide its EMI (equated monthly installments).
You can use Budwisefunds Home loan EMI calculator to know your monthly EMI.
Further, the home loan EMI calculator helps you to calculate your EMI even before applying for your loan. This makes the planning stage easier. The working of home loan calculator is simple. Like any mathematical calculator (i.e., the work is simplified) you just have to put the relevant entries like:
• Tentative loan amount
• Interest rate
• Tenure for which you intend to take the loan.
Once all the entries are keyed, the calculator will do its job and show you the EMI you would have to pay. However, it should be kept in mind that the EMI remains the same throughout the tenure of your repayment, what fluctuates is the interest, time period and the principal amount.
Home loan EMI calculator is simply used to calculate the EMI beforehand. This is very important since it makes the task easier for you to plan your finances and find the easy way out to spend it. This way you’ll be prepared for future expenses like, how you want to pay the EMI without straining too much.
The EMI calculation helps you to know the amount you can take as a loan and this makes your loan approval easy. All these things simplify the budget and saves your time. This way, you can easily buy your budget dream home.
The saying “prevention is better than cure” fits better here for your hard earned money. You work day in and out to earn, amidst it, you dream of your house and nobody would want it to be as fragile as some house made of cards. You want to be sure about every step you take as a part of your planning. Below mentioned are the precautions fished out for you:
• Beware of frauds
The market is flooded with frauds and you should look for a reputed builder company. See if the property you’re ready to invest in, is authentic and the dealer is known to everyone. Also,make sure all of the documents are in place and are original.
• Hunt for better interest rates
There are several firms lending money. But your job is to find the best one with a reasonable interest rate.
• Pre-payment Charges
You should check about the charges levied by your home loan provider if you wish to pre pay some or all of your home loan principal. In most of the cases, there is no pre payment charges on floating home loans. In fixed rate home loans, the prepayment penalty is 2% approximately.
• Processing Fees
Normally , the lenders charges 0.50%-1% of the loan amount as processing fees subject to the maximum capping of Rs.10,000 plus GST. Finally it depends upon the location of the property and cibil rating of the borrower.
• Check eligibility criteria
This is one of the most important criteria in order to take a home loan. Your eligibility defines your affordability to take the loan. The home loan eligibility differs from one institution to another. It is important to calculate yours in reference to the institution of your choice. However, there are some basic eligibility criteria:
✔ Any salaried, self-employed or business person with Indian nationality can apply for a home loan.
✔ You must be aged 21 years or above.
✔ You should have a regular source of income for timely repayment of the loan.
✔ Your professional stability and savings history matters.
✔ No bad credit history for at least the three months prior to applying for a home loan.
✔ If you are a salaried professional, about 55% of your monthly gross income can be considered as your monthly EMI against the loan.
✔ For self-employed individuals, profit earned by you majorly determines the loan value you are eligible for.
Home loan calculator determines the amount of loan you can take, in order to get your dream house. Eligibility calculator helps to calculate the approximate amount of home loan you are eligible for. This is calculated on the basis of your monthly income, existing EMI, age,credit history,credit score,rate of interest and loan tenure.
Whatsoever, taking a home loan is an intelligent move. Not everyone has a concentration of money to buy or build a home. Even if you have enough savings in your bank account to buy a home, it is not advisable to flow all your money and have nothing for future emergencies. Taking a loan can provide you with many tax benefits. It increases your creditworthiness, which will make your future loans or credit card application easy. Even if you have enough cash to spend it is still recommended to take a home loan.
A home loan can be a financial burden. But it can be overcome. Although it is given for a long tenure, it is possible to prepay your amount. It may seem difficult but with planning and actual implementation, it is a lot easier and better. A regular repayment is a good option. You can pay from your bonus and some parts from your savings. This may help in chipping off your long tenure. Prefer tenure reduction over EMI reduction to overcome it in less time.
Your loan EMI consist of two parts namely principal and interest. If you have taken a home loan for 20 years, then around 85% of your EMI consist of interest and rest is the principal amount. This interest component keeps on decreasing and the principal amount keeps on increasing with the passage of time. What is left during the last years of EMI is more of principal and very less of interest.
That’s why we always advise our clients to do not close the loan account during the finishing years as what you are paying in EMI is maximum of principal amount and very less of interest component.
Moreover, in the long run, it’s not just the borrower who face the problem but also the money lender. The trouble arises at the question of whom are they supposed to lend their money. Below mentioned are some of the factors which the lenders should check before granting home loans:
• Check if the borrower fits in the home loan eligibility criteria.
• The borrower by any means shouldn’t be a fraud.
• Check for authentic documents.
• Check if the borrower fails to repay the loan who would shoulder the finances.The lender can ask the borrower to bring co-applicant and/or guarantor.
Q1. What is a Home Loan Calculator?
A. Home Loan Calculator is a tool which helps you to calculate the EMI while purchasing a house and choose the most convienient way for you and your family needs.
Q2. Why is a Home Loan Calculator important?
A. Since EMI includes repayment of the principal amount along with the payment of the interest on the outstanding amount taken as your home loan, it is necessary to know how much you will be paying and in how much time. Also, it helps you in budgeting and managing your cash flows.
Q3. How does a Home Loan Calculator work?
A. All you have to do is, put in some relevant entries such as tentative loan amount, Interest rate and the Tenure for which you intend to take the loan. Once you insert all values, you will come to know the EMI amount payable.
Q4. Is the home loan processing fees is refundable?
A. It depends whether the loan applications gets approved by the lender or not. If it is approved by the lender and borrower decided not to take the loan amount in full, then in most cases, lender forfeits the processing fees.
But, if the loan application gets rejected by the lender, then the processing fees will be returned to the borrower in general.
Q5. Is there any tax benefits on home loan principal and interest repaid to the lender during the financial year?
A. Yes, there are tax benefits on three components:
• Home loan Principal
You can claim upto Rs. 150,000 under section 80c of the income tax act in a financial year. This deduction is available only after the construction of property is complete. Also, if you sell the property within 5 years of possession, the benefit will be reversed. The amount that you have already claimed will get added back to your income in the year in which you make the sale.
• Home loan Interest
If your property is self-occupied , then you can claim an exemption of Rs. 200,000 with regards to interest under section 24 of income tax act in a financial year.This amount of deduction is available as long as the property is completed in 5 years. If its completion exceeds this time frame, the limit drops and you can claim up to Rs.30,000. On the other hand, if you aren’t occupying the property yourself, there is no limit on how much you can claim as an exemption, regardless of the status of completion.
• First time buyers
While you can claim deductions on the principal and interest amount of your home loan under Section 80C and Section 24, you can also claim an additional tax deduction as a first-time homebuyer. Under Section 80 EE, you can claim an extra Rs.50,000 per financial year towards interest payments. You need to remember that the value of your home must be less than Rs.50 lakh, and the value of the home loan must be under Rs.35 lakh.
Q6. Is it beneficial to take home loan jointly?
A. You may apply for a Joint Home Loan along with your spouse, friend or even relative. In such a case, you are eligible for tax benefits as long as you co-own the property as well. You can each make claims up to the full amount under Section 80C and Section 24. So, if tax-saving is on the agenda, this move will help you boost your savings significantly.
It is a secured loan availed along with a co-borrower, thereby, sharing the responsibility of repayment equally.
A few benefits of Home Loan with joint holders are increased eligibility of the loan, enhanced budget, more tax benefits, equal repayment liability, etc.
Q7. What are the persons eligible as a co-borrower for joint home loan?
• Joint Home Loan with parent
A joint home loan with parents will increase your loan eligibility, enhanced budget, more tax benefits, equal repayment liability, etc.
Working couples can apply jointly for higher loan amounts as two incomes can adequately support the cost of loan. You can also enjoy income tax benefits as you can each make claims up to the full amount under Section 80C and Section 24.
You can apply for Joint Home Loan with brother or sister when they co-own the house.
Daughters who are unmarried and primary owners can also be co-applicants.
Sons having the primary ownership in case of multiple heirs can be co-borrowers as well.