**New real estate loan: Presentation**

Buying a house in India is a special feeling. With the rising cost of housing, it has become mandatory for most people to take out a home loan. Buying the right property is crucial. Likewise, getting the right loan and determining an EMI that you would be comfortable paying is key. Do your homework to find the best possible deal for your home loan. Today we are going to help you with all the important things related to a new home loan.

**New mortgage loan: How to reduce the amount of your mortgage EMI?**

No matter how much you earn per month – paying a large amount of EMI is uncomfortable. Therefore, before taking out a home loan from a bank or NBFC, you should find ways to lower the EMI amount of your home loan. Here are some simple and easy ways to do it:

**New EMI home loan: Reduce the interest you have to pay-** The easiest way to lower your EMI is to take out a loan at a lower interest rate. For example, if you take a home loan of Rs 50 lakh at an interest rate of 7.5% for 20 years, your EMI will be Rs 40,280. All being the same, if the interest rate is 6, 5%, you pay an EMI of Rs 37,279.

**New EMI home loan: Make a bigger down payment –** You can lower your EMI if you make a larger down payment and reduce your loan amount.

**Take a new mortgage: Opt for a longer term- **If the EMI is high and you are not comfortable, you can try increasing the hold time to reduce the EMI. In the example above of an interest rate of 7.5%, if you change the term from 20 years to 25 years, your EMI will change from Rs 40,280 to Rs 36,950. Please note that you will end up with pay higher interest with higher tenure. In the latter case, you pay Rs 60.84 lakh in interest. In the former case, the total interest paid will be only Rs 46.67 lakh.

**New home loan strategy: tapering EMI plans –** These are for those who are comfortable paying higher EMIs today but would like to pay lower EMIs later – to increase their financial responsibility, near retirement or for some other raison. In this option, you choose to pay a higher EMI at the start and gradually decrease the amount of EMI.

**Home Savings Loans:** If you have a fluctuating income and that is the reason why you want to reduce your EMIs, you can opt for home savings loans. These are similar to the overdraft facility. With this option, your minimum obligation is to pay only the monthly interest. If your budget is tight, you can only pay the minimum for those months. Whenever your income reaches a comfortable level, you can pay a higher amount to reduce the outstanding principal amount.

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**How to calculate the EMI from the interest rates of new mortgages?**

The EMI calculation allows you to make an informed decision – whether the loan is a good option for you or not. You can use EMI by using online EMI calculators or by using the formula below to calculate EMI:

EMI = P x R x (1+R)^N /[(1+R)^N-1[(1+R)^N-1[(1+R)^N-1[(1+R)^N-1

P = Principal amount of the loan or loan you take out

N = term of the loan

R = The interest rate at which you take out a loan. The interest rate is calculated per month. This means that if your interest rate is 7.2%, R would be (7.2)/(100*12) = 0.006

Suppose you take a loan of Rs 10 lakh at an annual interest rate of 7.2% for a term of 10 years, your EMI will be calculated as follows:

EMI = Rs 1000000 * 0.006 * (1 + 0.006)120 / ((1 + 0.006)120 – 1) = Rs 11,714.

**Types of home loans**

Before you jump in and take out a loan, you need to know the two options the bank will give you. You will need to select one of the two for your loan application – fixed or floating home loan.

In the fixed loan option, the interest rate remains the same throughout the term of the loan. In the floating interest rate option, changing the bank’s MCLR will affect your EMI amount. If the RBI increases the repo rate, the bank will pass the rate hike on to you and this will increase your EMIs.

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**How are mortgage interest rates determined?**

**The mortgage rate includes: **Bank margin + external reference rate

Banks consider various factors when calculating interest on home loans such as your **Credit score, loan amount, loan to value ratio, income level, etc.** These factors may vary between individuals. These factors impact the **bank margin.** However, the factor that remains constant for all customers is the **External reference rate.**

**What is the external reference rate?**

According to RBI, all variable rate home loans granted by banks from October 1, 2019 must be linked to external benchmarks such as the **Repo rate, 3-month and 6-month treasury bill rate** and any other reference market rate published by the **Financial Benchmarks India Private Ltd** (FBIL). Therefore, although this part remains constant, you can reduce your overall home loan by maintaining a good credit score and a good level of income.

**Home loan: These 5 banks offer the lowest interest rates**

In this section, we will look at the banks offering the lowest interest rates. However, please note that the interest rate varies from person to person. This will depend on your risk profile – CIBIL score, gender (women get loan at lower rate), employed or self-employed, and loan amount. If your CIBIL score is good, you can get a loan at a lower rate. Here are the banks that have the lowest mortgage interest rates:

Bank | Mortgage loan rate |

Overseas Indian Bank | 7.15% and more |

central bank of india | 7.2% and above |

Bank of Maharashtra | 7.3% and above |

National Bank of Punjab | 7.4% and above |

Bank of Baroda | 7.45% and above |

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