H O M E  L O A N S

What is Home Loan?

A home loan is an amount of money that an Individual or company borrows from a bank or financial institutions for purchase or construction of property, at a certain rate of interest, to be paid with the Equated Monthly Installment (EMI) every month. The concerned property purchased by the borrower, is taken as a collateral security by Lender Bank or financial institution.

The property must be residential property. Commercial property, shop, Industrial Property etc is not eligible for housing loan.

When the borrowers cannot pay the dues, the lender will possess all the legal rights to recover the outstanding loan amount by sale of the property in question.

Type of Home Loans:

Home Purchase Loan:
This is the Loan that one takes for purchasing a home.

Home Improvement Loan:
This Loan covers expenditure related to repairs of your home or even renovation

Home Construction Loan:
This loan comes in handy when you are building a new house.

Land Purchase Loan:
Someone wishing to buy a plot of land for construction his/her own house can avail this loan.

Home Extention Loan:
Suppose you plan to add another room, garage, bathroom or kitchen to your home. This is the loan that you should apply for and this also comes in handy if you are planning to have another floor.

Home Loan Balance Transfer:
You can use this mechanism to switch your outstanding loan amount to a different lender with better terms and conditions and lower interest.

Top Up Home Loan:
A home loan top-up are loans that are offered by banks to existing home loan borrowers. While some banks have conditions stating that the top-up loan should be used only for home-related purposes, where as, there are many banks and financial institutions, that don’t have such restrictions.

NRI Home Loan:
People who are living outside India, also known as Non-Resident Indians (NRI) buy property in India for investment or for their family. The terms, requirements, interest rates and procedures are different for them as compared to the basic home loan. These are specifically designed for NRI's.

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Home Loan Eligibility Criteria:

Home Loan eligibility depends upon various factors. A few of them are listed here –

Credit Score/CIBIL Score:
Credit score is the reflection of your credit worthiness and is a major factor in deciding home loan eligibility. A credit score above 750 and close to 900 is considered good for home loan eligibility. It increases the chance of loan approval. It also improves the chances of getting loans at better terms and rates. A credit score below 750 or close to 300 is considered poor. This score might lead to loan rejection or make you pay higher interest rates

Applicant’s Age:
The minimum age to apply for a home loan is 18 years and in general the maximum age at the time of loan maturity should be 60 years in case of Salaried Applicant and 70 years in case of Self Employed, however with deviation and based upon bank norm, particular financial institution may strech maximum age capping little bit. A younger loan applicant can opt for longer loan tenure. This is because younger loan applicants have longer working years than the ones nearing their retirement age.

Employment/Business Stability:
For many lenders, salaried individuals should have at least two years of total working experience in order to be eligible for a home loan. In case of self-employed Individuals, the business should have vintage of at least 3 years

Fixed Obligations to Income Ratio (FOIR):
FOIR, also referred as ‘debt-to-income ratio’, tells your debt repayment capacity. This method considers your fixed monthly pay outs as a percentage of your net monthly income. FOIR calculation will also include EMIs of home loan for which you have applied with the lender. The ideal FOIR that lenders prefer when assessing a home loan application is between 60% to 75%. If your fixed monthly obligations is more than your EMI bearing capacity, then your housing loan application may be rejected or the loan amount sanctioned will be lower than expected.

Property Details:
Lenders also assess the age and location of the property. Your lender might reject your loan application if the remaining life of your property till the end of loan tenure is less than your lender’s standards. They might also reject the application if the location of the property does not fall within the geographical limits defined by the lender.

LTV and Property Value:
Loan to Value (LTV) ratio is the portion of the property value that a bank can finance. This ratio is used by banks and housing finance companies to lower default risk. As per RBI’s guidelines, financial institutions might offer 90% LTV ratio in case of homes worth less than Rs 30 lakhs. This has been done with an aim to promote affordable housing in the country. Banks also offer higher LTV to staff members and buyers who are purchasing property in project, where the bank is a partner.
In case of loans between Rs 30 lakhs and Rs 75 lakhs, the LTV ratio can go up to 80%. For loans above Rs 75 lakhs, the required LTV ratio is 75%. This implies that you will have to pay a certain amount as a down payment to buy the home.

Home Loan Interest Rates

Home Loan in India can primarily be classified into two types, based upon interest rates reset frequency: fixed rate and floating rate of interest.

Fixed Rate

Fixed Rate Advantages:
1. Fixed monthly instalments
2. Proctection form interest rate fluctuations
3. Better cash flow management

Fixed Rate Disadvantages:
1. Expensive than floating rates
2. High exist free and pre-payment penalties
3. Bank often have rights to change rates

Floating Rates

Floating Rate Advantages:
1. Cheaper than fixed rate loans
2. Flexibility in repayment
3. May work well for the long term

Floating Rate Disadvantages:
1. Required regular monitoring
2. Shape fluctuation in instalments
3. Cash flow management risk

What are the Fees and Charges Applicable to get a Best Home Loan ?

There are specific fees and charges applied by banks and financial institutions while processing the home loans. These charges are different from the interest rates. These charges differ in value from lender to lender but the types of charges are the same everywhere.

1. Login Fee:
Sometimes also called the Administrative Fee or Application Fee, this is a non-refundable amount charged by certain banks when you apply for a loan, even before your loan is approved. It ranges from Rs.2,500 to Rs.6,500. If your loan is approved, you have to pay the processing fee, which will be charged minus this amount. For example, if you paid Rs.2,500 as login fee and the processing fee is Rs.12,500, then you need to pay only Rs.10,000 after approval.

2. Processing Fee:
Processing fee is a one-time charge to be paid by a home loan borrower to the bank or financial institutions. The fee is charged to cover the costs incurred by the lender on the loan process. It is not deductible from the loan amount. Thus, the borrower needs to pay it separately. This fees is normally payable after the sanction of loan amount, but before disbursement of same. Different banks charges different amounts as processing fee. This fee is either a specific percentage of the loan amount or a fixed amount of money. Depending upon applicant's profile and considering some terms and conditions, banks often negotiate and lower the processing charges or waive it off completely.

3. Late payment charges:
If the borrower is late in paying any of the loan installments, almost all the banks impose late payment charges on the borrower. Be it any reason, financial crunch or some other financial liability or plain oversight, banks do not bend their rules.

4. Conversion charges:
Banks offer best home loans on two types of interest rates: Fixed interest rate or Floating interest rate. The borrower can choose between these two interest rates. Every time a borrower applies for switching from fixed rate to floating or vice versa, conversion charges are applied by the bank. These charges are some specific percentage of the principal amount of the loan.

5. Legal Fee:
Before disbursement of home loan, bank verifty the tile of property (Ownership) of offered collateral security, from empanelled Lawyers. For completing title search, bank can charge Legal fees. Certain financial institutions, charge Legal Fees over and above Login Fees, however certain financial instition take only Login fee to complete Legal process.

6. Administrative Fee:
Some banks charge administrative fee separately from the processing fee. Administrative fee is applied by banks to compensate for the back-end administrative processes that are performed while processing of home loan applications.

7. Processing Fee:
Processing fee is a one-time charge to be paid by a home loan borrower to the bank or financial institutions. The fee is charged to cover the costs incurred by the lender on the loan process. It is not deductible from the loan amount. Thus, the borrower needs to pay it separately. This fees is normally payable after the sanction of loan amount, but before disbursement of same. Different banks charges different amounts as processing fee. This fee is either a specific percentage of the loan amount or a fixed amount of money. Depending upon applicant's profile and considering some terms and conditions, banks often negotiate and lower the processing charges or waive it off completely.

8. Valuation/Inspection Fee:
The bank will levy this amount for valuation and inspection of the offered collateral security from empanelled Valuers. Certain financial institutions, charge Valuation Fees over and above Login Fees, however certain financial instituion take only Login fee to complete Valuation process.

9. Statutory / Regulatory Charges:
Financial institutions extending housing loan product require borrowers to bear the cost of certain statutory and regulatory fees thereby, all applicable home loan charges on the following are to be borne by the borrower.

10. Stamp Duty:
It is the tax payable on property documents and is applied during the sale or purchase of a property.

11. MOD Charge:
Memorandum of Deposit of Title Deed (MoD) confirms that you’ve given your property’s title deeds/ownership papers to the bank as collateral for the loan. It confirms the ownership of the specific property. It is also called MODTD, DTD, or MODT, and is typed out on a non-judicial stamp paper. This document can be of use if your property is involved in a legal problem. MoD charges are different for different states. For example, MOD charge in Karnataka is 0.1% to 0.2% of the cost of the property (min.Rs.500 and max. Rs.10 lakh).

12. Prepayment Charge:
Also known as Foreclosure Charge and Preclosure Charge, this fee is applicable if you pay off your home loan in full before the end of the tenure. Most banks charge no foreclosure fee for floating rate loans and for individual borrowers (as opposed to companies). When this fee is levied, it ranges between 2% to 5% of the outstanding amount. So, if you are closing your loan account by paying the balance of Rs.12 lakh, then you may have to pay between Rs.24,000 and Rs.60,000 to the bank.

13. Partial Prepayment Charge:
Also known as Part-payment Charge or Part Prepayment Fee, this is levied by banks in case you’re paying off a part of the balance amount and not in full. Again, floating-rate schemes are usually exempt from this, but when charged, the fee ranges from 1% to 5% of the balance loan amount. So, if your bank levies this fee and you make multiple partial payments, remember that you are likely to end up paying the bank a lot more than you intend to.

What is an Amortization Schedule in Home Loan and How to Calculate it ?

A Home Loan Amortization schedule is something that you should understand when it comes to your home loan. You can always use a home loan amortization calculator to work out the entire thing. You will mostly get an amortization chart for home loan from your lender. Here is what the schedule comprises of:

Installment Number :
Every EMI will have a serial number with payment details in corresponding rows

Due Date :
This is the date on which each loan payment will be due.

Opening Principle :
This is the principal amount at the start of each month on which interest will be charged.

Installment Amount :
This is the EMI or monthly repayment amount which can change with interest rate fluctuations over several years.

Principle Component of Installment :
This is the EMI component that goes into repaying the principle home loan amount.

Interest Component of Installment :
This is the EMI component allocated for repaying interest on the opening principle amount. initially, EMI contain more of the interest component and steadily the reverse keeps happening with the passage of time

Closing Principle :
This is the remaining principle post every month's EMI payment. This is equal to the opening principle for the next month.

Interest Rate Per Annum :
This is the interest rate per annum or yearly and may vary based on the lender. Home Loan interest rate impacts the EMI that you have to pay each month..

These are the Key components of the home loan amortization schedule. Use the Home Loan EMI Calculator to get the amortization chart for home loan.

Calculate your EMI and Verify your Amortization Schedule now

Pre-EMI vs Full EMI

Understanding payment schemes for under construction properties :

to the construction stages of the property. When you purchase an under-construction property, your bank may link the disbursal of home loan to the construction stages of the property. In such cases, you will either be asked to pay pre-EMI OR given an option to choose between pre-EMI and full EMI payments.

Usually when a borrower takes home loan for an under-construction property, the loan gives a moratorium of up to 3 year during which time the borrower only needs to pay the interest component of the loan. A 3-year moratorium takes into account the fact that during this time the construction of the house is complete and so hereafter the borrower can pay interest as well as the principal through equated monthly instalments (EMI). But if the construction is delayed beyond the moratorium period, the borrower ends up paying principal as well as interest.

What is Pre-EMI?

As you are probably aware, Equated Monthly Instalment (EMI) consists of Principal and Interest components. Pre-EMI is just the interest portion on the disbursed loan amount that you pay until the full disbursal is done. i.e., your home loan behaves like an interest-only loan on the disbursed amount until the completion of construction. Your EMI payments start after the pre-EMI phase. Until then, your money does not reduce even a paisa of the outstanding loan amount.

Balance transfer of Home Loan

Many Balance transfer of Home Loan are coughing up high interest rates. If you’re amongst them, you should consider shifting your home loan from your existing lender to a new one. This facility is called a ‘balance transfer option’ and many banks offer this facility nowadays. Doing so will decrease the monthly EMI you are paying towards your loan and will bring in savings.

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Smart/Interest Saver Home Loan Overview

Banks offers you the unique Smart Credit loan, where you decide what interest you pay. Smart Credit power packs your loan with transactional features that not only allow you to save on interest, but also helps you repay your loan much faster. So, now you can make your every rupee work as hard as you do. In Smart Credit account deposit your excess saving rather than keeping it idle.In Smart Credit you will have the flexibility to withdraw the surplus money deposited in Smart Credit account. Deposit your excess funds in Smart Credit and save the intrest on yur Loan. In Smart Credit interest is calculated on daily outstanding balance. In Smart Credit you can use this account like current account.

To avail this product, you have to link a current or a saving account to your home loan at the same bank. You can deposit any surplus funds in this linked account. Whenever you deposit a surplus amount in the account, the bank considers this amount and deducts it from the principal of your home loan while calculating the intrest on the outstanding home loan.

Smart home loan helps borrowers in two ways. First, it reduces your interest outgo resulting in reduced EMI. In Smart home Loan your interest liability is lower and principal amount outgo is higher. In broader outlook customers not only save the tenure but also saves on interest.

Home Loan Documents

To avail Home Loan, most of the lending institutions in India require following document to process loan application:



Self Employed
Properitorship Firm
Self Employed
Partnership Firm
Self Employed
Pvt Ltd / Ltd
Application Form With Photograph Duly Signed
Clear Pancard Copy, (Applicant & Co-Applicant)
Latest Residence proof (Applicant & Co-Applicant)
Latest Office Proof (Applicant & Co-Applicant) X
Last 3 Months Salary-Slips X X X
Last 12 Months Bank Statements
Login Fees Cheque
Proof Of Business Existence ( Gumasta License , Sales Tax Certificate , GST Certificate etc ) X
Form 16 of Last 3 Yrs X X X
Sanction Letter of all Existing Loans, if any
Business Profile X
GST 3B Copy of Latest One Year X
Last 3 Years ITR with CA Certified / Audited Balance Sheet And Profit & Loss Account X
Partnership Deed X X X
Company Pancard Clear Copy X X
Shareholding Pattern On Letterhead X X X
Sundry Debtor & Creditor List Last 1year X
Property Papers ( Chain Of Agreement, OC, CC, BMC Approved Plan & Share Certificate Front and back copy,Society NOC) / Draft Agreement, Cost Sheets.

Documents to be submitted before loan disbursement


Checks & Controls

Loan Agreement and Annexures

✔ Loan agreement as per product type

✔ Annexures to be duly filled, signed & stamped as per state law
✔ MII (Most Important Information) pages
✔ MCLR consent letter
✔ Schedule of loan agreement
✔ List of Documents (LOD)
✔ Loan restriction letter (if any)
✔ Disbursement request letter
✔ For NRIs – franked GPA document
✔ Indemnity for under construction cases in plot loans
✔ Guarantor agreement (if applicable)
✔ Any alteration/correction to be authenticated by applicants

National Automated Clearance House (NACH) mandate/Standing Instruction (SI) form and Security Cheques (SPDC)

✔ NACH / SI mandate with a signed cancelled cheque with A/C holder's name as per bank records.

✔ SPDC - 3 undated security PDCs equivalent to EMI amount
✔ 1 undated cheque with amount kept blank
✔ 1 cheque towards Pre-EMI amount
✔ SPDC favoring respective bank

Loan Cover/ Insurance Details

✔ Property insurance application form (if applicable)

✔ General insurance application form (if applicable)
✔ Life insurance application form (if applicable)

Processing Fee / Equitable Mortgage cheques

✔ Balance processing fee cheque (with clearance details)

✔ Equitable mortgage charges / stamping charges

Property Documents

✔ Property documents as per type of transaction, according to bank's policy

For Balance Transfer / Takeover of loan from other bank / financial institution

✔ Original list of documents from previous financer

✔ Latest 12 months loan A/C statement with latest outstanding letter
✔ Existing loan details and 6 months bank statement from where EMI is deducted
✔ Indenture of guarantee, undertaking of indemnity, forwarding letter and Annexures in respective financial institution format

Own Contribution Receipts

✔ Own contribution receipts

✔ Bank statement reflecting debit of own contribution paid

Sanction Letter

✔ Duly accepted and signed by all applicants / power of attorney.

✔ All sanction conditions to be met.


✔ If TDS is being paid by applicant – TDS challan & bank statement reflecting debit of TDS paid

✔ If TDS is not paid by applicant – Undertaking cum indemnity to deduct TDS amount from disbursement.

PSL Documents
Financial documents (any of the below) :
✔ Audited balance sheet
✔ CA certificate – original investment in Plant & Machinery
✔ Copy of invoice (investment in Plant & Machinery)
✔ GST registration certificate
✔ For LAP cases – PSL Annexures
Other Documents (to be collected if applicable)
✔ Letter from customer towards opting for EMI in case of partly disbursed case
✔ Vernacular/indemnity bond Dual name/dual sign affidavit
✔ Credit Linked Subsidy Scheme (PMAY) affidavit
✔ End use letter for Top Up/LAP/LAP top up cases