A low home-loan EMI does not always mean a cheaper loan. Banks can reduce the monthly EMI by extending the repayment period, but a longer tenure may considerably increase the total interest paid.

Before choosing a home loan, compare the complete borrowing cost—not only the advertised interest rate.

Costs beyond the EMI

A home loan may include:

• Interest over the full tenure
• Processing or application fees
• Legal and technical-verification charges
• Mortgage and documentation expenses
• Property or loan insurance
• Rate-conversion charges
• Penal charges for delayed payments
• Administrative and document-retrieval fees

Ask the lender for a Key Facts Statement and written schedule of all charges.

Fixed versus floating interest

A fixed-rate loan offers greater payment predictability, subject to the loan agreement. A floating-rate loan changes with the lender’s benchmark.

When a floating rate increases, the lender may increase your EMI, extend the tenure or use both options. Ask how a rate change will affect the total repayment amount before accepting the loan.

Prepayment can reduce interest

Part-prepaying the loan reduces the outstanding principal and future interest. Prepayments made during the early years can produce greater savings.

Banks are not permitted to charge foreclosure or prepayment penalties on floating-rate home loans provided to individual borrowers. Different conditions may apply to fixed-rate or business-purpose loans, so check the agreement.

Under-construction property costs

For an under-construction home, buyers may pay pre-EMI on the amount disbursed by the lender. If construction is delayed, the buyer may have to pay both rent and pre-EMI for longer than expected.

Compare before borrowing