Gone are the days, when getting a home loan was a tough task. Nowadays, obtaining a home loan is a cakewalk, thanks to low interest rates, income tax benefits, and competition among the Housing Finance Companies (HFCs). The market is flooded with HFCs, which are competing to attract customers with a number of offers. Most of the customers are not familiar with the basics of home loans, and are not sure what is the best home loan option. Here, we offer some tips to help you select the best home loan.

What is home loan?
Home loan is a loan offered to fulfil your residential needs. Here, the home itself stands as security (i.e. mortgaged), till you pay back the entire loan amount.

Basic Requirements
Normally, to get a home loan, you should

Budget
Many HFCs offer you a home loan up to 85 % of the property value (or up to 1 crore), depending upon your eligibility. You need to raise a minimum of 15 % on your own. Also you need money for stamp duty, registration charges, brokerage etc. Therefore, you need to decide on your budget first.

Eligibility
The next step is to find out the loan amount for which you are eligible. This is calculated based on your income and liabilities (commitments such as car loan, etc). If your spouse also has an income, you can make him/her as a joint applicant, so that you will be eligible for a higher amount of loan. Normally, the EMI (Equated monthly Installment) of your loan can be up to 40 % of your monthly income. The Websites of HFCs have Loan Eligibility Calculators, which will help you find out how much loan you can get.

Interest Rates & Other Fees
The most important part of a loan is the interest amount. Collect information on the rate of interest and other fees charged by various HFCs. Approach the HFCs, check the newspapers, and also use the Internet to find out the latest information. When it comes to interest rates, you need to know about terms such as ‘fixed rate’, ‘floating rate’ and ‘reducing balance’.

Floating Rate vs Fixed Rate
In the floating rate option, the interest rate changes depending upon the retail prime lending rate (PLR). In the fixed rate option, the interest rate remains constant throughout the tenure. If you are sure that the interest rate is likely to fall in future, and stay below the current level, you can go for the floating rate option. If you are not sure about this, choose the fixed rate option.

Advantages & Disadvantages

Retail Prime Lending Rate	Floating Rate	Fixed Rate
Increases	You Lose	You Gain
Decreases	You Gain	You Lose

Reducing Balance (Daily, Monthly and Annual)
The interest component of your loan is calculated based on daily, monthly and annual reducing balances. Always go for daily or monthly reducing balance, where the EMI is low, compared to annual reducing balance. Use EMI calculators on the Internet to find out which bank offers the lowest EMI.

TABLE I - EMI / Lakh for Daily, Monthly, and Annual Rests (Reducing Balance)

Amt Rs	Tenure Yr	Interest %	Daily Rs	Monthly Rs	Annual Rs
1,00,000	15	10	1,058	1,075	1,096
		11	1,119	1,137	1,159
		12	1,182	1,200	1,224
		13	1,246	1,265	1,290
		14	1,311	1,332	1,357
		15	1,378	1,400	1,425

EMI for Daily, Monthly & Annual reducing balances (per lack for 15 years)

Also you need to note that interest rate alone should not be the criterion for choosing an HFC. HFCs demand separate charges such as processing fee, commitment fee and admin fee. You need to take these also into consideration, before choosing an HFC.

Prepayment
By opting for prepayment and early closure of the loan, you will be able to save a huge amount. When choosing a HFC, check if there is any prepayment penalty.

Repayment Period Do not go for a very long repayment period, just because the EMI is a little low. Ultimately, you will end up paying a huge interest amount. Try to keep the repayment period as low as possible.

Other Points to Note

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