Calculating Home Loan Interest

The Actual Cost of Purchasing a Property with the Assistance of a Home Loan

At 405 Gyp Aggregates Co., we understand that purchasing a home is more than just acquiring a place to live; it’s about building a foundation for future generations. According to BankBazaar’s Aspiration Index 2021 survey, homeownership is the top wealth desire for many, scoring 90.7 on the “Importance” scale. home loan is a very important thing However, the ‘readiness gap,’ or the difference between the importance and readiness to achieve this goal, is 6.3, indicating that many people feel they still have a long way to go before they can buy a home.

To estimate the actual cost of buying a house with a home loan, it’s crucial to consider various factors beyond the property’s purchase price. Here’s a breakdown of these costs:

Down Payment

One of the initial expenses is the down payment. Typically, a home loan covers 90% of the home’s value, leaving 10% to be paid out of pocket. However, for loans exceeding Rs 75 lakh, lenders may only approve up to 75% of the loan amount, requiring a 25% down payment. For example, if your home is worth Rs 30 lakh, you would need a down payment of Rs 3 lakh. For a property worth Rs 1 crore, the down payment could be Rs 25 lakh.

Home Loan Interest

Interest on the home loan is usually the largest cost associated with homeownership. The interest rate depends on several factors, including the borrower’s age, gender, income, credit score, property valuation, and loan-to-value (LTV) ratio. For instance, a 30-year-old woman with a credit score over 800 buying a Rs 30 lakh house with a 90% LTV would need a Rs 27 lakh loan. A 30-year loan at 6.75% p.a. would result in monthly payments of Rs 17,512 and a total interest payment of Rs 36.04 lakh, making the overall repayment amount Rs 63.04 lakh. For a Rs 1 crore house, the loan amount would be Rs 75 lakh, with monthly payments of Rs 49,897, total interest of Rs 1.04 crore, and an overall repayment amount of around Rs 1.8 crore.

Maintaining a good credit score helps secure the best interest rates, and strong repayment capability ensures timely loan repayment without compromising other financial goals. Part-paying a floating rate home loan is beneficial, as there are no penalties for doing so.

Additional Home Loan Charges

Home loan lenders may impose various additional fees, such as:

  • Loan Processing Fee: A small percentage of the loan amount, which may include documentation, legal opinion, and property valuation fees.
  • MODT Charges: The Memorandum of Deposit of Title Deed fee, typically ranging from 0.1% to 0.3% of the loan amount, varies by state.

Processing fees, legal opinion fees, and MODT fees usually amount to less than 1% of the loan amount and may be capped, subsidized, or eliminated.

Stamp Duty and Registration Fees

State governments impose stamp duty and registration fees on every property transaction. These fees vary based on the property’s location, price, and size. Together, they account for roughly 3% to 6% of the property’s value. Additionally, if the property is bought through a broker, brokerage and legal fees can range from 1% to 2% of the property value. For a Rs 30 lakh property, these costs could be Rs 2.1 lakh, and for a Rs 1 crore property, they could be Rs 7 lakh.

Planning and Preparation

Prospective homebuyers must plan ahead and ensure they have sufficient repayment capacity before committing to a home loan. Maintaining a credit score of at least 750 throughout the loan term can help avoid additional interest costs. It’s also crucial to consider the affordability of EMIs in light of other financial goals and liabilities, as any lapse could jeopardize one’s financial situation.

By understanding these costs and planning accordingly, homebuyers can make informed decisions and achieve their homeownership goals more effectively.

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