A home loan is the biggest debt most Indians ever take — often ₹30–80 lakh over 20 years. Small decisions on rate, tenure, and down payment translate to lakhs in interest saved or wasted. This guide covers what you need to know before you sign, in plain English.
How home loan EMI works
EMI (Equated Monthly Instalment) is calculated on reducing balance: each month you pay interest on the remaining principal, then the rest reduces the loan. Over a 20-year term, you often repay nearly as much in interest as the original loan amount. Use a home loan EMI calculator with your exact rate and tenure before committing.
How much home loan can you get?
Banks cap your total EMIs at roughly 50% of monthly income (FOIR rule). Existing EMIs reduce what is left for a home loan. A ₹1 lakh/month income with no other EMIs might qualify for roughly ₹50,000/month EMI — translating to about ₹50–60 lakh loan at 8.5% over 20 years depending on your age and credit score.
Rate, tenure, and down payment — the three levers
- Rate: even 0.25% difference saves lakhs over 20 years. Negotiate after comparing 3–4 lenders.
- Tenure: longer tenure lowers EMI but balloons total interest. Choose the shortest tenure you can afford.
- Down payment: 20% minimum is standard. More down payment means less interest forever.
Prepayment — the cheat code
Floating-rate home loans have no prepayment penalty for individuals (RBI rule). Paying even ₹5,000 extra per month can save years and lakhs in interest — especially in the first half of the tenure when interest dominates. Model it with a prepayment calculator before you decide between prepaying and investing.
Tax benefits (old regime only)
Under the old tax regime: principal repayment qualifies for Section 80C (up to ₹1.5L combined with other 80C), and interest on self-occupied home qualifies for Section 24(b) up to ₹2 lakh per year. The new regime removes these benefits for most salaried taxpayers — factor that into your regime choice.
The takeaway
Do not stretch to the maximum loan the bank offers. Leave room for emergencies, maintenance, and life — a house you cannot afford to maintain is not wealth.