Choose Your Home Loan Tenure Carefully

Taking a home loan is a big step, and you want to be sure of what you’re getting into. So conduct a substantial amount of research and learn everything you can about home loans before even approaching a lender.

With escalating real estate prices, home loans are a popular source of finance for people looking to purchase their dream abode. And while we enjoy some freedom in selecting the ideal home loan, it is important to remember that the ultimate decision on the amount and tenure of your loan will be determined by your bank.

That being said, of course you will have some control over the tenure of your loan repayment. And it is imperative that you contemplate your home loan tenure carefully before you apply for one.

What is Your Monthly Income?

Your monthly income is the most important factor in determining the tenure. As a rule, your EMIs (the amount you spend every month to repay your loan) cannot be higher than 50% of your monthly income.

So let us say you earn Rs. 50,000 every month and you’re applying for a loan of 24 lakhs. If you choose a tenure of 20 years, you will be paying an EMI of around Rs. 24,000, which is roughly 50% of your monthly income.

In this case, you will have to choose this plan as your monthly income is too low to pay a higher EMI.

What to Keep in Mind

When choosing a home loan tenure, there are several factors you need to keep in mind.

  1. Interest Cost

Your EMI (equated monthly installment) is the amount you give the bank every month in order to repay the loan. It consists of two components – the principal (a part of the actual loan amount) and interest (the cost of taking a loan from the bank).

If you opt for a longer tenure, your EMIs will be substantially lower. However, you will end up paying a lot more money in the form of interest over time.

On the other hand, if you opt for a shorter home loan tenure, your EMIs will be a lot more, but most of the money will go into repaying the loan, and you’ll spend a lot less on interest.

  1. Dependents

Another factor to consider is whether you have dependents in your family like children or aging parents. When you’ve got other financial responsibilities to take care of, it’s best to take a longer home loan tenure with a smaller EMI amount.

This way you can easily pay the EMI every month and have enough money left over to take care of your family.

If you live alone or with a working spouse, it’s best to take a shorter tenure with higher EMIs so you can clear the loan as quickly as possible.

  1. Monthly Income

This is quite obvious, but you need to be earning enough to repay the loan that you’re planning to take. Select a loan tenure based on your monthly income and expenditure. If you’re earning a large sum and have enough surplus left over after your expenses, then it’s best to opt for a shorter tenure and clear the loan amount quickly.

  1. Credit Rating

Banks will inspect your credit rating before agreeing to grant you a home loan. So be sure to make all your payments on time and avoid writing cheques when there is the possibility that they may bounce.

With a higher credit score, the banks are sure to grant you a lower rate of interest on a home loan. This reduced interest rate will grant you greater financial flexibility, giving you more control while determining your home loan tenure.

  1. Your Age

Younger borrowers often have a higher chance of receiving a home loan for a longer tenure, as they have more working years left. Banks want to ensure that you will be able to repay the loan before you retire.

This means that if you’re availing a home loan at 45, your home loan tenure cannot extend beyond 15 years. Some banks recognize the retirement age as 65, but most lenders differ in their opinions of the retirement age.

Weigh Out All Your Options

Taking a home loan is a big step, and you want to be sure of what you’re getting into. So conduct a substantial amount of research and learn everything you can about home loans before even approaching a lender.

Also, you want to approach various lenders and figure out the interest rates they offer. This way you can select the most cost-effective option. Happy home-loan hunting!



6 Ways To Boost Your Home Loan Eligibility

Buying a home is a significant undertaking. It requires meticulous research, careful planning and thorough checking before the buyer can be at peace. One of the major aspects of purchasing a home that worries buyers is with respect to taking home loans for the same.

Irrespective of whether or not you can afford the purchase with your savings (which is rarely the case), one is usually advised to take a home loan to spread the commitment over a few years. What then follows is nerve-wracking analysis of each bank’s home loan and deciding on the right one. In the midst of all this, it is also important to ensure that you can maximize your eligibility for a home loan or qualify for the maximum amount of home loan possible. In the midst of all this, it is also important to ensure that you can maximize your eligibility for a home loan or qualify for the maximum amount of home loan possible.

So how can one improve home loan eligibility? Here are some ways:

Increase loan tenure

This is probably the oldest tactic in the book. The logic is that when one increases the tenure of the loan, the EMIs are reduced. Lower EMIs then boost the borrower’s loan eligibility. However, this needs to be thought through based on each individual’s circumstances and preferences

Step-up loan

In this option, individuals can opt for step-up loans which essentially mean that the EMIs in the first few years will be low and then consequently increased for the remaining period. This again lends to higher home loan eligibility when calculated with the lower EMIs in question.

Clubbed income

 Loan eligibility automatically increases if you can join forces with a family member and take the loan. This means that both of your incomes will be considered as opposed to just your income. Especially in the past decade, this has become a common solution with women also working and contributing to the family finances

Variable pay

One mistake that a lot of people make when calculating their home loan eligibility is not taking into account the variable aspects of their pay such as performance-related income and other monetary perks. You may notice that once you include these components as well your loan eligibility is instantly boosted

Prepay existing loans

If at the time of approaching your banker for a loan, you already have a loan in your name (i.e. car loan, personal loan etc.) it could bring down the amount your eligible to borrow for the home purchase. One way to fix this is by pre-paying any existing loans you have in part of in full

Employer-bank offers

Banks sometimes have tie-ups with large multinational corporations wherein they offer the employees of said corporation some benefits to taking a home loan. These could be in the form of lower interest rates, waiving of processing fee and so on. It would be prudent to check with your banker if any such offers are available to you to utilise. Given that RBI reduced the interest rates last year, it is likely to encourage a lot of prospective buyers.

This article first appeared in The Hindu.

Reasons For Home Loan Rejection

A home loan is one of the best options, to arrange the funds needed for buying a home. Generally, it is easy to avail of a home loan, if the applicant has all the documents in place and has a good credit history. However, banks may still reject a home loan application. Some important reasons for rejection are:

  • A bad credit score: Credit score is a significant deciding factor in sanctioning home loan. Make sure you have a good credit score in place before applying for the loan.
  • Bad credit history, which may include a loan settlement in the past that is reflected in the credit report.
  • The project is not approved by the bank.
  • The home loan application, is made for a project that falls in a restricted area.


Home Loan Process For NRI’s

Owning a home is a dream for most of us and thanks to the diverse home loan schemes available to make that dream a reality. How is this different in case of Non- Resident Indians (NRI)? Is it equally easy for them to obtain a home loan and own the property of their choice? NRI home loans are now easily available in India, subject to fulfillment of certain conditions.

NRI Status:

Before getting into the details of a home loan for NRIs, it is essential to understand just who is a non-resident Indian. All banks and non-banking financial companies (NBFCs) go strictly by the definition of NRI as adopted by the Reserve Bank of India. Under the RBI definition, any citizen who holds a valid Indian passport and stays out of India for employment or business spending less than 182 days in India in one financial year is deemed as a NRI. So before applying for a home loan under NRI category, make sure you qualify for a NRI home loan keeping in view the minimum number of days to be spent away from India.

Here we take a look at what is required to avail this loan and how it differs from a normal loan taken by a resident Indian:

Eligibility and Documents required

An NRI should meet the criteria on minimum age and minimum years of work experience abroad. The criteria vary across institutions. In State Bank of India (SBI) the minimum age limit is 18 years and the number of years a NRI should have worked should be 2 years. But if you intend to take a loan from ICICI bank, then it is enough if you had worked for one year abroad, but your minimum age should be 25 years. If you are a self-employed, then you should have stayed abroad for at least 3 years.

Paper work

For the documentation process, a copy of your passport, visa and employment related documents such as your three to six month salary slips, appointment letter, employment contract if any and address proof, are mandatory. These documents can be submitted to the overseas bank branch located the closest to you, in the country where you reside. The documents are then sent to the Indian branch for processing.

Loan tenure & Interest rates.

Earlier there were differences in the interest rate charged for a NRI home loan and for the ones offered to resident Indians. But now the rates are the same.

When it comes to loan tenure, institutions and banks like HDFC and SBI offer longer periods of 20 to 30 years – the same as offered to a resident Indian. But in some cases the loan tenure is restricted to 10 or 15 years.

Maximum Loan Available

While banks and non-banking financial companies are free to use their discretion in offering the maximum loan amount for NRI home loans, there is not much difference in deciding maximum amount of loan compared to Indian residents. Usually NRIs can expect a maximum loan amount ranging from 80-85 percent of the total market value of the property. There is however a difference in which banks or NBFCs calculate the maximum loan amount for NRIs.

Some banks use the gross monthly income of the NRI as a yardstick offering upto 40 times the gross monthly income as the maximum home loan amount. Other banks use net monthly income as their defining yardstick limiting a certain percentage of net monthly income as a deciding factor.

Features of NRI loans

  • Loan tenor restricted to 10-15 years in some cases
  • No difference in interest rate offered to residents and non-residents
  • Repayments made through NRE/NRO accounts
  • Loan repayment is eligible for tax exemption only if an additional taxable income earned from India


With references from State Bank Of India, HDFC & ICICI Bank loan eligibility segments.