All you need to Know about Home Loan EMI
Dec 21, 2016 Home Loan
Just to have that perfect house of dreams is everyone’s wish. To make that dream come true a person needs to have enough funds and if there is short of funds you can go to the bank or a financial institution to get a home loan.
Home loans are usually taken for two reasons:
Home loans are usually taken for two reasons:
- First and primary reason being there is no enough of cash resources with the buyer.
- Second reason for taking home loan being it provides benefit for tax planning as the interest paid on home loan is tax deductible.
- The money taken by the person needs to be repaid to the bank on a regular basis along with the interest on the percentage laid down by the bank, so such installment of money repayment is called EMI which means equity money installment.
- The EMI of a loan includes both the component which is the principal amount and the amount of interest charged on the loan.
- With the passage of time interest component decreases and principal component increases.
- While charging the EMI various components are taken into consideration like principal loan amount, interest rate, and tenure of the loan. So after analysing all these factors number of installments and amount per installment is determined.
- The maximum tax benefit on a home loan is restricted up to Rs 2,00,000 irrespective of the fact whether you live in the house or the house is vacant this deduction is available under sec24 of the income tax act.
- Usually if higher is the loan amount higher will be the EMI and higher the interest rate. If lower the loan amounts lower the EMI and lower the interest rate. If shorter the loan tenure higher EMI amount and lower the interest rate and if longer the loan tenure lowers the EMI amount and higher the interest rates.
There are further two methods of calculation EMI which are as follows:
I.Fixed rate loan: The EMI payment remains constant during the tenure.
II.Floating interest rate loan: the interest rate keeps fluctuating during the tenure as per the financial market the added advantage of such an EMI is reductions in the interest rate in case the interest rates decreases. The principal amount remains the same throughout only interest rates keep changing.
If there is prepayment of an amount it would lead to a decrease in the number of EMI leading to the quick payment of the loan and less interest amount to be paid. If the EMI’s are kept lower in the initial period it would lead to increase in tenure and amount of interest to be paid on the loan.
I.Fixed rate loan: The EMI payment remains constant during the tenure.
II.Floating interest rate loan: the interest rate keeps fluctuating during the tenure as per the financial market the added advantage of such an EMI is reductions in the interest rate in case the interest rates decreases. The principal amount remains the same throughout only interest rates keep changing.
If there is prepayment of an amount it would lead to a decrease in the number of EMI leading to the quick payment of the loan and less interest amount to be paid. If the EMI’s are kept lower in the initial period it would lead to increase in tenure and amount of interest to be paid on the loan.
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