Money Basics · Big purchases

Home loans

A home loan is typically the largest financial commitment of your life. Most people spend more time choosing their flat than understanding the loan that funds it.

Key terms

• Principal: the amount borrowed
• Tenure: repayment period (typically 15–30 years)
• Interest rate: floating (changes with RBI repo rate) or fixed (locked for a period)
• EMI: equated monthly instalment
• LTV (Loan to Value): max loan as % of property value. RBI sets the ceiling in slabs by loan size. 90% up to ₹30 lakh, 80% for ₹30–75 lakh, 75% above ₹75 lakh. The bigger the loan, the bigger the down payment you must fund

Floating vs fixed rate

Most Indian home loans are floating. Linked to EBLR (External Benchmark Lending Rate), which tracks RBI's repo rate.

> When RBI cuts rates, your EMI drops. When RBI hikes rates, your EMI rises. A 1% rate hike on a ₹50L loan over 20 years adds ~₹3,200 to your EMI.

Fixed rates are higher but predictable. Most buyers take floating.

The tax benefits

• Principal repayment: up to ₹1.5L deductible under 80C (old regime only)
• Interest paid: up to ₹2L deductible under Section 24 (old regime; for self-occupied property)

Before you sign

• Compare rates across banks and housing finance companies (HFCs)
• Read the pre-payment clause: can you prepay without penalty? (Floating rates: RBI mandates no penalty)
• Check processing fee: 0.25–1% of loan amount, non-refundable
• Credit bureau score below about 750 → lenders typically quote a higher rate, or decline

20–30 yearstypical home loan tenure

90 / 80 / 75%RBI's LTV ceiling, stepping down as the loan gets bigger. You fund the rest

The single best move: keep the EMI below 30% of take-home salary. Go lower if you have other EMIs.

Takeaway. A home loan is a 20–30 year commitment. Keep EMI below 30% of take-home, check for prepayment flexibility, compare rates across 3–4 lenders, and always read the sanction letter.