Home loans in India are provided by the lenders up to maximum of 80% (90% for loan amount below Rs 20 lakhs) of the agreement value of the house. In case of home loan for resale flats, most lenders get the property valued independently and they will provide the housing loan based on their value rather than the cost mentioned in the purchase agreement. Frequently, the valuation as determined by the banker's valuer for the purpose of home loan is significantly lower than the actual cost and hence the requirement of the borrowers for down payment for the loan goes up. Also note that banks do not consider other charges like Stamp Duty, Registration Charges, etc. while considering the home loan amount eligibility.

Home loans are repaid through monthly instalments (EMI) spread over up to 20 years. Some of the banks provide housing loans even for a tenure extending up to 25 - 30 years. The maximum tenure of any loan and home loan specifically is also restricted by the borrower's age at the end of the tenure so as to ensure that the loan gets fully paid by or before the retirement age.

Home loan in India can primarily be classified into two categories on the basis of interest rates i.e. fixed rate and floating rate of interest. There are very few lenders in India who offer pure fixed rates where the rate of interest remains constant for the entire tenure of the home loan, while most lenders have a reset clause of 3-5 years. In floating home loan type, the rate of interest on such loans is subject to change whenever there are changes in the repo rates announced by RBI or any changes in base rate of the bank. Borrower should opt for fixed interest rates only if she/he is certain that the rate of interest is the lowest in the interest cycle.

The home loans in India are provided by banks and housing companies. The popular ones being SBI, HDFC, ICICI, etc. In turn RBI and National Housing Bank regulate these respectively, which issues guidelines governing home loans in India from time to time.

In recent times, some lenders have come up with innovative home loan products like dual rate of interest where the interest rate on such loans remains fixed for initial 1-5 years and thereafter it automatically moves to a normal floating rate of interest. Here one should be aware that loan taken under dual rate, which starts as a fixed type of interest in the initial stages are treated as fixed rate home loan for the purpose of levy of penalty for prepayment of loans.

In case where you prepay your housing loan the lender cannot levy any penalty for prepayment of such loan where the loan is taken under floating rate of interest as per the guidelines issued by RBI and National Housing Bank (NHB).

  • Dos & Don'ts to remember while availing Loans:

    • Decide on the basis of what you really need. Also see if the cost fits into your estimated budget.
    • Compare the quotations given and interest rates from 3-4 banks, select the one which offers maximum benefit and serves your purpose. In case of doubt always seek experts advise on this issue before availing the loans.
    • Also determine the tenure of the loan. The EMI may come less for longer tenure, but the total interest outgo will be higher.
    • Know all about processing fees and time. Some banks may waive the processing fee for processing loan but they build this cost on their interest rates.
    • Consider pre-payment options. All banks charges 2% - 4% of the loan in case you decide to pre-pay the outstanding amount in case of LAP/LRD. But Prepayment charges are waived in case of Floating Rate Home Loans.
    • Default in payments results in penalties. It can also adversely affect your credit history and profile. So make sure to make your payments on time.
    • Make sure that all deals and offers agreed upon are supported by relevant papers. So make sure you always ask for a letter in a banks letter-head mentioning the likes of, exact rate of interests, processing fees, pre-payment charges along with interest-schedule.
    • Also before signing the documents, make sure you have understood all terms and conditions.
    • Do not at any circumstance give any false information. This may amount to fraud and could land you in trouble.
    • Do not sign any blank documents. Even if it takes you a few hours to fill-up the form, please do so. Do not leave anything for the executive to fill-up.
    • Finally, once you have received a loan do your best to pay it back as quickly as possible. Banks make their money off the interest they charge and the sooner you pay back a loan the less money you will have to pay in interest.


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