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Oct 01, 2012

Asses Your Capacity to Repay Before Availing Home Loans

image The maximum amount of loan depends upon the value of the property and the repayment capacity of the buyer. Banks provide housing loans for a term up to 30 years and we pay off the loan by way of equated Monthly Installments (EMIs). While availing a housing loan, customer can choose either fixed rate loan or floating rate loan. The interest rate will be fixed in case of fixed rate loan and the rate will alter according to the central bank policy for floating rate loan. When interest rates are going down, floating rate loans are beneficial.

Also, the customer should see whether the interest is calculated on an annual reducing balance method or on daily reducing balance.

On an annual reducing balance method, the interest is determined on the basis of the balance outstanding at the beginning of the year. So the repayment will be high. On the other hand, in the case of the daily reducing balance, interest is calculated only on the outstanding loan amount, which reduces every time you pay off your EMIs. Now housing loans can be prepaid without any penalty.