Budgeting Your EMI in Your Income

Did you ever wonder why your EMI is generally restricted to 30% or 40% of your monthly income? Here is why. Salary details, qualifications, employer/business, years of experience, growth prospects, alternate employment prospects and sources of other income, if any, all are aspects that determine the amount of loan you are eligible for.

Generally, the repayment schedule is worked out in a manner that allows not more than about 40% of your monthly gross income to be repaid as EMI. It is restricted to 30 % or 40% keeping the following factors in mind:

10% of your income is spent on other loans, if you have any or if you avail one in the future.

25% of your income gets deducted by way of statutory deductions and for investment purposes.

25% of your income is generally spent to meet your monthly expenses.

This leaves back 40%, which is taken as your repayment capacity for this loan.

For self-employed applicants, profit is the benchmark that determines loan value. 

The longer the time frame for repaying the loan the lower the EMI and this also means you can opt for a larger loan amount. The loan amount you are eligible for is also dependent on other factors like the company you are employed with, the location of your residence and your credit history.

A long term loan like a home loan from Housing Finance Companies is a debt that is part of your budget every month. If you invest too much into it, there might not be adequate funds to manage a huge list of other expenses that will tend to accumulate with time. For e.g. You need to make allowances for future expenses like education expenses for children, emergency funds for a job loss or the loss of one income in a situation where two people have taken a joint loan.

The might be spikes in interest rates. In such a scenario usually banks will increase the loan tenure in order not to put the loan taker in a tight spot by increasing his EMI. In such a scenario if you have adequate funds in hand you could prepay at intervals, allowing scope for closing your loan early.

[Source: http://www.sooperarticles.com/finance-articles/investing-articles/budgeting-your-emi-your-income-303924.html?]

How to Get Best Home Loans in India

One's house is where his heart lies. Hence, owning a house is one of the biggest dreams and goals for many people. Years ago, buying a home was a daunting task for common masses with the huge rates of property. However, today you can get best home loan from several schemes available in India which enables even common masses to buy their dream homes easily!

Process of approval of such schemes in India is very simple. Also home loans are available for different interest rates. One can also get a scheme which depends on one's ability to repay. Apart from this, one can easily select for an EMI scheme as per his/her budget & affordability.

You can avail housing schemes as per different options & flat rates & floating rates of interest thus providing various choices to the borrower.

The borrower can mortgage his property or land against the scheme. If you're a salaried individual then you need to show your documents as a proof of your earnings to the bank. Other related identification documents and proofs vary across lenders.

Today there's intense competition in the mortgage market. As a result, one can obtain home loans at high competitive rates. There are lots of companies who show various offers to lure potential borrowers. Therefore, one needs to be prudent while selecting home loan schemes and select the best home loan after studying the loan provider and related documents carefully.

Another way to get best home loan is online from Housing Finance Companies. Selecting schemes online and comparing loan offers from different lenders and banks becomes so easy. Instead of visiting lenders physically, you can get the best home loan deal by simply navigating various websites online. Also applying for online home loan, one gets the benefit of minimal paperwork and just need to follow simple one-time procedure. There are various premier banks which offer housing schemes in India. One can get best home loan at favorable interest rates. The rates can range from 7.5 per cent to 16 per cent. However, further negotiation can get you further discount in rates.

These schemes are available at different interest rates which depend on the repayment tenure. Also one can easily avail EMI options as per her own budget & affordability. These schemes are available as per different requirements. One can get best schemes at flat rates & floating rate of interests thus providing huge range of choices to the borrower for favorability.

[Source: http://www.sooperarticles.com/finance-articles/loans-articles/how-get-best-home-loans-india-1352288.html?]

How Much Cheaper Can Your Loan Get After The Repo Rate Cut?

Most home buyers, irrespective of how much they earn, feel the pinch when they have to shell out money every month to pay for EMIs on Home Loans. Any drop in the EMI amount would bring cheer to existing and new Home Loan borrowers.

With the Reserve Bank of India cutting repo rates by 25 basis points from 6.5% to 6.25%, which is the lowest in six years, loan borrowers are hopeful about a decline in interest rates, which would translate into a reduction in EMI amounts.

Additional Reading: 6 Common Mistakes Made By First-Time Home Buyers

The relation between repo rates and loan EMIs

Repo rate is the rate at which the Reserve Bank of India lends money to commercial banks. As a lower repo rate would mean paying less to the RBI for the banks, it would mean paying back loans at a lower interest rate for the borrowers. The fall in interest rate would see the number of borrowers go up, thereby, increasing profits for the banks?

However, a repo rate cut does not always lead to a decline in interest rates. Only if the banks reduce the base lending rate, the loan EMI comes down. Also, the banks need to check if they are able to have enough margins by compensating for loan defaults and NPAs before passing on the benefits to borrowers.

Current Home Loan rates and interest rates once banks pass on rate cut benefits

Will a mere 0.25% decline result in adequate savings?

A 0.25% decline in interest rate may appear too small to make a substantial difference in a short period of time, but it could help you save in the long run.

For example, if you have a Home Loan of Rs. 50 lakh to be paid back over a tenure of 20 years with an interest rate of 9.5%, your loan EMI would come down to Rs. 46,607 with a total payable interest of Rs. 61,85,574. So, at the end of the loan tenure, you would end up paying a total amount of Rs. 1, 11, 85,574 including principal and interest.

If your bank cuts down the interest rate to 9.25%, the loan EMI would be down to Rs. 45,793, translating to a total payable amount of Rs. 1, 09, 90,402 at the end of the loan tenure.

Thus, you would end up saving up to Rs. 1.95 lakh on the total payment of your Home Loan.

Drop in repo rate: Ideal time to consider home loan refinance?

If you’re not happy with the rates being offered by your current financer on your Housing Finance, you have the option of moving to the MCLR regime within the same bank or to an MCLR-linked loan at another bank. Even a 0.25% difference between the two interest rates could potentially save you lakhs of rupees in the long run.

All you need to do is pay a processing fee along with a legal fee to your new lender which amounts to a small percent of your due loan amount.

Additional Reading: When Is Home Loan Refinancing A Good Idea?

If your Home Loan is nearing completion, the rate cut would not impact you much. So, if you have an existing loan, do keep an eye on the total interest saved either by reducing the tenure or EMI or moving your loan to another bank.

[Source: https://blog.bankbazaar.com/how-cheaper-can-your-loan-get-after-the-repo-rate-cut/]