Financial institutions provide you with pre-approved home loan options even before you make the decision of purchasing a property or home. Such credit options are helpful for you if you are looking to lock the purchase deal as early as possible. You can apply for such pre-approved home loan offers and avail the loan proceeds instantly in your bank account on the same day of placing the application for the home loan. Usually, lenders allow you to avail a pre-approved offer of a loan proceeds of up to Rs 15 lakh or Rs 20 lakh.
However, before you avail the loan offer, you must ensure to use an online Bank of Baroda home loan EMI calculator or online SBI home loan EMI calculator to compute the affordable home loan EMI as per your cash inflows and repayment potential. Doing so would allow you to make an informed decision and prevent you from defaulting in the future owing to inadequate funds.
Also, you as a borrower will even require deciding on the appropriate property you want to buy as per your affordability before the offer ends as a pre-approved home loan is valid for a limited time-period, generally up to 6 months. In the case of regular home loans, financial institutions tend to lend just after the authentication of the property, your repayment potential, and other legal needs.
Discussed here is a detailed guide on ways to avail a pre-approved home loan of an amount of up to Rs 20 lakh, ways to check the home loan EMI and rate of interest and fees and charges to help you make an informed decision.
How do financial institutions compute your home loan EMI on the proceeds of up to Rs 20 lakh?
On the pre-approved home loan, financial institutions conduct an in-depth check to know your repayment potential before offering you this deal. This involves reviewing your savings history, net monthly income, existing loans, running investments, credit score and existing liabilities. This assists the financial institutions to compute the highest loan proceeds you as a borrower can receive. Suppose they decide they can provide you with a loan of Rs 20 lakh. However, this is only an in-principal loan that financial institutions might agree to.
Also Check: SBI Home Loan EMI Calculator
Now let us understand the procedure involved in computing the loan EMI with the help of an example. Say, M has decided to purchase a two BHK flat whose actual value is Rs 30 lakh. Post meeting the lender’s technical and legal due diligence needs, the financial institution has agreed to provide M a home loan of up to Rs 20 lakh and the rest of the home cost must be met by M in the form of down payment.
The financial institution has provided M, a home loan at a yearly rate of interest of 7.2 per cent for the repayment tenure of ten years. The EMI constituent of M would be computed with the assistance of the following formula.
P X R X (1 + R) ^ N/ [(1 + R) ^ N – 1]
Here, P = principal loan proceeds = Rs 20 lakh
N = loan repayment tenure = 120 months
R = Rate of interest per month = 0.006 i.e., 7.2 / 12/ 100
Loan EMI = Rs 20 lakh x 0.006 X (1 + 0.006) 120 / ((1 + 0.006) 120 – 1) = Rs 23,428
Thus, M would pay the EMI equaling Rs 23,428 per month for a repayment tenure of ten years. Overall, the thorough payment M will require meeting is Rs 28.11 lakh of which the interest constituent is Rs 8.11 lakh.
Financial institutions might also show M the break-up between principal and interest constituent using the home loan amortisation scheme to examine his EMI payments.
How to compute the rate of interest on home loan for a loan proceeds of up to Rs 20 lakh?
Note that pre-approved home loans come with a floating interest rate levied by the financial institutions. This interest rate on home loans, however, is not the same for all the loan borrowers. Financial institutions conduct their due diligence to review the borrower’s score, stability of job, net monthly income, EMI/NMI ratio, and other income sources.
According to the RBI’s guidelines, the floating interest rate on home loan is attached with repo rate and constituents like the spread over margin and reset frequency of rate of interest decide the interest rate for you as a borrower, which you must pay across the repayment tenure.
The reset frequency basically is set by the Reserve Bank of India (RBI) for all the repo rate related home loans. This can be performed by financial institutions quarterly. However, financial institutions may reset the rate of interest frequency periodically based on the existing RBI’s repo rate. Spread over margin, in contrast, is paid over the RBI’s repo rate. The home loan’s spread is determined according to the loan proceeds and borrower’s credit score.
Let’s factor in the above-mentioned scenario of Rs 20 lakh taken up by M to show the interest rate computation owing to changes in reset frequency. When M took up the home loan, financial institutions had provided a floating interest rate at 7.2 per cent. However, after three months the Reserve Bank of India increased the repo by 50 bps. Thus, the rate of interest of M’s home loan increased by 50 bps i.e., at 8.70 per cent per annum.
This interest rate will show up on the M’s EMI between one and three months according to the financial institution’s policy. Note that, financial institutions do not inform you individually regarding the change in EMI interest rate owing to the reset on the rate. Hence, it is necessary for you as a borrower to stay informed regarding how the rates are computed on your home loan.