Home Loans in India: eligibility, cost and prepayment

A home loan's cost is set by four things: the rate, the tenure, the fees and how much you prepay. Lenders decide how much you get from your income, your existing obligations, your credit record and your remaining working years. Compare offers on all-in cost, never on the headline rate.

How lenders assess you

Underwriting a home loan answers two separate questions. Is the borrower good for the money, and is the property good security. Most applicants prepare for the first and are surprised by the second.

Income, and which part of it counts

Lenders work from assessed net income, not from the number at the top of your payslip. For salaried applicants, fixed monthly pay counts fully, while variable components — bonus, incentive, overtime — are either discounted or ignored, and lenders differ on this more than on anything else. For self-employed applicants, assessment runs off filed returns and audited accounts over two or three years, with adjustments for depreciation and other non-cash items. Rental income from existing property can count, usually at a discount. Pay yourself a small salary and show profits in a company and you will be assessed on a smaller figure than you earn.

Fixed obligations to income ratio

FOIR is the share of net monthly income already committed to EMIs and other fixed obligations, plus the EMI you are applying for. Lenders cap it, commonly somewhere between about forty and fifty-five per cent depending on your income band and their own policy — higher incomes are usually allowed a higher ratio, because the money left after the EMI matters more than the percentage. Each lender has a different number and will tell you theirs if you ask.

Two practical points follow. Existing EMIs eat directly into eligibility, so clearing a car or personal loan before applying can lift the sanction by more than the cleared EMI suggests. And credit card limits are sometimes treated as potential obligations even when unused, so closing unused cards before applying occasionally helps.

Credit record

Indian bureaus score on a scale running to the high hundreds, and lenders publish pricing tiers linked to the score: a strong record gets the best spread, a patchy one gets a higher rate or a rejection. What moves the score is unglamorous — repayment history above all, then how much of your available credit you use, then the age of your accounts, then how many new applications you have made recently. Pull your report before you apply rather than after, because disputed entries take weeks to correct and a single misreported default can cost you the best pricing.

Age, tenure and co-applicants

Tenure is constrained at both ends. Lenders generally want the loan to finish around retirement for a salaried borrower, which means a borrower in their forties cannot take the longest tenure on offer and therefore faces a higher EMI for the same amount. Longest available tenures commonly run to twenty or thirty years depending on lender and profile.

Adding an earning co-applicant raises eligibility, because the incomes are considered together. Keep two distinctions clear. A co-applicant is jointly liable for repayment. A co-owner holds title. Tax deductions follow ownership and the share of repayment actually borne, so a co-applicant who is not a co-owner generally cannot claim them. Several states also charge lower stamp duty where a woman is a purchaser, and several lenders price marginally finer where a woman is the primary applicant, so the ownership structure is worth deciding deliberately rather than by default.

The property itself

The lender's legal and technical teams review title, approvals, the developer's track record and the construction stage. A loan can be declined on the property even where the borrower is impeccable, and that is useful information: a lender refusing to fund a project has usually found something. Sanction for the borrower and sanction against a specific property are separate steps, and only the second protects you.

LTV rules and your down payment

The down payment is not a matter of preference. Regulation caps how much of a property's value a lender may finance, and those ceilings are tiered: the larger the loan, the lower the permitted loan-to-value, so bigger purchases require a proportionally bigger contribution. Lenders also apply their own, usually stricter, internal caps.

The detail that catches people out is what the value excludes. LTV is computed on the property value, and stamp duty, registration and documentation charges are specifically outside it. Those cannot be funded by the home loan, so the cash you need up front is the down payment plus the whole of the registration cost plus brokerage plus fit-out. On a purchase where the headline requirement is a fifth of the price, the real cash requirement is noticeably more than a quarter. The full list is in what buying a home really costs.

A larger down payment than the minimum has three effects: a smaller loan and so a smaller EMI, possibly a better rate where the lender prices by LTV band, and less total interest. It also strands more of your money in an illiquid asset, so do not empty an emergency fund to reduce an EMI. Keeping six months of outgoings accessible is worth more than a slightly lower instalment.

Working backwards from EMI capacity

Most buyers start from a property price and ask whether they can afford it, which is the wrong direction. Start from what you can pay each month and derive the price.

Fix the monthly figure you can commit for twenty years without strain — not the maximum a lender will allow. Subtract existing EMIs. Then convert that capacity into a loan amount using the EMI per lakh borrowed, which depends only on the rate and the tenure.

EMI per ₹1,00,000 borrowed, at a round nine per cent used purely to make the arithmetic illustrative. This is not a current rate; substitute the rate you are quoted.

Tenure	EMI per ₹1 lakh	Loan supported by a ₹50,000 monthly capacity
10 years	About ₹1,267	About ₹39,50,000
15 years	About ₹1,014	About ₹49,30,000
20 years	About ₹900	About ₹55,60,000
25 years	About ₹839	About ₹59,60,000
30 years	About ₹805	About ₹62,10,000

Notice how little the loan grows after twenty years. Going from twenty to thirty years adds about twelve per cent to the amount you can borrow and, as the next table shows, enormously more to the interest. Stretching tenure is a poor way to buy a bigger home.

Running the same logic in the other direction answers the question people usually ask as what salary do I need for a one crore home. Take a price of ₹1,00,00,000. A typical minimum contribution of a fifth is ₹20,00,000, and registration, brokerage and fit-out might add another ₹7,00,000 to ₹8,00,000, so the cash requirement is around ₹27,00,000 to ₹28,00,000 before the loan starts. The loan of ₹80,00,000 over twenty years at our illustrative rate gives an EMI near ₹72,000. If a lender caps FOIR at half of net income and you have no other EMIs, that implies net monthly income of roughly ₹1,44,000, and more if you carry any other borrowing. Change the rate or tenure and every figure moves, which is the point of doing it with your own numbers in the affordability calculator rather than reading a headline.

Fixed versus floating

A floating rate moves with a benchmark. A fixed rate does not, for a stated period. The structural change worth understanding is what happened to the floating side.

Banks were previously free to price floating loans off internal benchmarks, which meant cuts in policy rates reached borrowers slowly and unevenly while increases arrived promptly. Since 2019 banks have been required to link new floating-rate retail loans, including home loans, to an external benchmark — in practice usually the policy repo rate — plus a spread. The spread has two parts: one reflecting the lender's own costs, which is meant to stay fixed over the loan's life, and one reflecting your credit risk, which can be revised if your risk profile changes. Rates reset at defined intervals, at least quarterly.

Three consequences follow. Transmission is faster in both directions, so a floating borrower now feels policy changes within a quarter. Pricing is more comparable across banks, because the benchmark is common and the difference between lenders sits in the spread. And a long-standing complaint largely disappeared: lenders can no longer keep new borrowers on a finer spread while leaving existing borrowers on a worse internal benchmark indefinitely, though moving to a lower spread still usually costs a conversion fee.

Housing finance companies, which are not banks, sit outside the external benchmark requirement and price off their own reference rates. That is a real difference when comparing a bank offer with an HFC offer: the mechanism by which your rate will change is not the same.

On the choice itself. Floating is the default in India and, over a twenty-year horizon, locking a rate for the whole term is rarely available at a price worth paying. Fixed-rate structures are commonly either short fixed periods that convert to floating, or fully fixed loans priced at a premium. A fixed rate is insurance: you pay more in expectation for certainty of instalment. That trade can be sensible for a borrower whose EMI is already at the limit of what the household can bear, and is poor value for one with slack. Note also that foreclosure and prepayment charges, barred on floating loans to individuals, can apply on fixed ones, so a fixed rate reduces your flexibility as well as your uncertainty.

When a floating rate rises, lenders usually extend tenure rather than raise the EMI, which hides the impact. Check what actually happened to your loan after a rate change, because a silently extended tenure can add years and a large sum in interest. The equity tracker shows where your balance really is.

The full charge list

The rate is the biggest cost but not the only one, and the smaller charges are where offers differ most once the rate has been negotiated.

Charges that can arise on a home loan. Whether each applies, and how much, varies by lender, state and loan type — ask for the full schedule in writing.

Charge	When it arises	What to watch
Processing fee	At sanction or disbursement	Usually a percentage of the loan, often with a cap and a floor; frequently negotiable or waived in a campaign
Legal and technical fee	During appraisal of the property	Sometimes bundled into the processing fee, sometimes charged separately and non-refundable even if the loan does not go through
Valuation fee	On the lender's valuation of the property	May recur if the valuation lapses before disbursement
Documentation and franking	On execution of the loan agreement	Stamp charges on the loan and mortgage documents are state-specific and can be material on large loans
Mortgage creation and registry charges	On creating the charge over the property	Includes central registry filing; also payable again on a balance transfer in some states
Insurance bundling	Offered alongside the loan	Property cover is reasonable; a single-premium life policy funded by enlarging the loan means you pay interest on the premium for twenty years. It is almost always optional — ask explicitly
Conversion or switch fee	On moving to a lower spread with the same lender	Far cheaper than a balance transfer; ask for it before considering a move
Part-prepayment and foreclosure charges	On prepaying	Barred on floating-rate loans to individual borrowers; can apply on fixed-rate loans. Confirm against your sanction letter
Default and bounce charges	On a missed or returned instalment	Penal amounts plus a bureau entry that affects future pricing
Administrative charges	Statements, duplicate documents, no-objection certificates, amortisation schedules	Individually small, but some lenders charge for things others give free

Comparing offers on all-in cost

We do not publish a best banks list, because any such list is either a ranking of advertising spend or a snapshot of rates that is wrong within weeks. The durable skill is comparing offers yourself, and it is not difficult.

Get each offer in writing with five things: the rate and the benchmark plus spread it is built from, the tenure sanctioned, the processing fee and whether legal and technical are inside it, the full schedule of other charges, and the conversion fee for a future spread reduction. Then compute, for each, the total of all EMIs over the tenure you actually intend plus every up-front charge. That single figure is what you are comparing, and it ranks offers differently from the rate alone more often than you would expect. Our home loan comparison tool does the arithmetic side by side.

A few things to hold in mind while negotiating. The spread, not the benchmark, is what is negotiable, and a strong credit record and a clean income profile are your leverage. Processing fees are discounted far more readily than rates, so ask for both. An existing banking relationship is worth raising. And the quoted rate for a borrower of your profile is often finer than the rate on the website, so never treat published pricing as the offer.

Tenure and total interest

Tenure is the lever borrowers reach for and understand least. A longer tenure reduces the EMI, which feels like a saving, and increases total interest, which is the actual cost.

Illustrative: ₹50,00,000 borrowed at a round nine per cent. Chosen for clean arithmetic; substitute your own rate.

Tenure	EMI	Total paid	Total interest	Interest as a multiple of the loan
10 years	₹63,338	₹76,00,500	₹26,00,500	0.52 times
15 years	₹50,713	₹91,28,400	₹41,28,400	0.83 times
20 years	₹44,986	₹1,07,96,700	₹57,96,700	1.16 times
25 years	₹41,960	₹1,25,87,900	₹75,87,900	1.52 times
30 years	₹40,231	₹1,44,83,200	₹94,83,200	1.90 times

Read the first and last rows together. Going from ten years to thirty reduces the EMI by about a third and multiplies the interest by nearly four. Between twenty-five and thirty years the EMI barely moves while the interest rises by another ₹19,00,000, which makes the longest tenures poor value for anyone who could manage a shorter one.

The sensible approach is to take a longer tenure for the safety of a lower committed instalment, then prepay as if you had taken a shorter one. That gives you the low EMI when income is interrupted and the short effective tenure when it is not — but only if you actually prepay. Model it in the EMI calculator.

Prepayment and foreclosure

Prepayment means paying more than the EMI, so the extra goes entirely against principal. Foreclosure means closing the loan early in full. On a floating-rate home loan taken by an individual, regulatory norms bar lenders from charging for either, which is one of the more useful protections an Indian borrower has. Fixed-rate loans can carry charges, and the terms for a loan being taken over by another lender can differ, so read your sanction letter rather than relying on the general rule.

When you prepay, ask explicitly what happens next, because there is a choice. Reducing the tenure while keeping the EMI unchanged is what saves interest. Reducing the EMI while keeping the tenure saves far less. Lenders sometimes default to the second, and you have to ask for the first in writing.

Timing matters because of how amortisation works. Early in a loan almost all of each EMI is interest, so a rupee of principal removed then avoids interest for the entire remaining term. The same rupee prepaid in the final years avoids almost nothing. Take an illustrative ₹50,00,000 loan at nine per cent over twenty years, with an EMI near ₹44,986. Three years in, the balance is about ₹46,92,000 and 204 instalments remain. A single prepayment of ₹1,00,000 at that point removes roughly ten instalments from the end of the schedule — about ₹4,50,000 of future payments, of which ₹3,50,000 is interest you never pay. Our prepayment calculator shows the effect of one-off and recurring prepayments on any schedule.

Prepay or invest the same money

Here is the cleanest way to think about a surplus. Prepaying a loan earns you a return exactly equal to the loan's interest rate, for the remaining period, with certainty and with no market risk. That is the whole comparison. The question is simply whether you can reliably earn more than your loan rate, after tax, on an investment you would actually hold for as long as the loan has left to run.

Three adjustments make the comparison fair.

• Compare after tax on both sides. An investment return is taxed on exit. The interest you avoid by prepaying is not taxed at all, which quietly favours prepayment.
• Net off any tax deduction you lose. If you are claiming a deduction for interest, prepaying reduces the interest and so reduces the deduction, which lowers the effective rate you are earning by prepaying. The size of that effect depends on your slab, your tax regime and whether the property is self-occupied or let out.
• Compare risk honestly. Prepayment is a certain, risk-free return. An expected equity return is neither. Setting a certain outcome against an uncertain one and declaring the uncertain one better because its average is higher is not a comparison.

In practice the answer usually comes out as a sequence rather than a choice. Build an emergency fund first, because a prepayment cannot be reversed and an unexpected expense met on a credit card costs far more than any home loan. Clear higher-cost debt next, since no home loan is your dearest borrowing. Take any employer-matched retirement contribution, which is free money. Then split surplus between prepayment and investment according to how much certainty you want, and prepay in the early years, when it does the most work. The EMI versus investment comparison puts both paths side by side.

Balance transfer: when it pays

A balance transfer moves the outstanding loan to another lender at a better rate. It can be worth a great deal and it is frequently sold when it is not.

The test is arithmetic. Compute the total interest remaining on your current loan over the tenure you intend. Compute the same at the new rate. Subtract the cost of moving: the new lender's processing fee, fresh legal and technical charges, stamp and mortgage registration on the new charge where your state levies it, any charges on the existing loan if it is fixed-rate, and the insurance the new lender will try to bundle. If the difference is clearly positive, move.

What makes it work or not is mostly remaining tenure. Early in a long loan the outstanding principal is large and the remaining interest is enormous, so even a small rate gap beats the switching cost comfortably. Late in the same loan, most of what is left is principal, there is little interest to save, and the fixed cost of switching swamps the gain. A transfer in the final years of a loan is almost never worth doing.

Before any of this, ask your existing lender for a spread reduction. Banks will often move an existing borrower to current pricing for a conversion fee that is a fraction of the cost of a transfer, and it involves no fresh documentation, no new valuation and no gap in cover. Get their conversion quote first and use it as the benchmark the transfer has to beat. Then run both through the home loan comparison tool.

Which type of lender suits you

What each category of lender tends to suit. These are structural tendencies, not a ranking, and individual lenders vary widely within each column.

Dimension	Public sector bank	Private bank	Housing finance company
Typical pricing	Often the finest for a strong salaried profile	Competitive, sometimes a little higher	Generally the highest, reflecting wider credit appetite
Fees	Usually lowest	Moderate, often negotiable in campaigns	Higher, and more items charged separately
Speed and process	Slower, more paperwork, branch-dependent	Fast and largely digital	Fast, with relationship-led underwriting
Flexibility on income	Conservative; prefers documented salary	Moderate; good with self-employed who bank well	Widest; will assess informal or partly documented income
Property appetite	Conservative on approvals and smaller towns	Moderate	Will often fund properties and locations banks decline
Rate mechanism	External benchmark plus spread	External benchmark plus spread	Own reference rate; resets work differently
Best suited to	Salaried borrowers with clean documents and patience	Borrowers who value speed and service, and those with slightly non-standard income	Self-employed, informal income, or a property a bank will not fund

A reasonable approach is to apply to one of each category rather than to three similar lenders. The spread of outcomes between categories is far wider than within them, and having a sanction in hand from a second lender is the most effective negotiating position there is. Keep the applications close together in time, so the bureau treats the enquiries as one shopping exercise rather than as a pattern of distress.

Tax deductions, structurally

The structure of home loan tax relief is stable; the limits are not, and they interact with which tax regime you are in. Learn the shape here and confirm every number for the current assessment year with your return or your adviser.

Principal repayment is deductible under the section covering specified savings and investments, within an aggregate ceiling shared with instruments such as provident fund contributions and life insurance premiums. Because the ceiling is shared, many borrowers are already at it from other items, in which case the home loan principal adds nothing. Stamp duty and registration paid on the purchase may also be claimed under the same section, but only in the year of payment.

Interest on a self-occupied property is deductible against income from house property up to a stated cap. Because a self-occupied property has no rental income, this produces a loss from house property that is set off against your other income.

Interest on a let-out property is deductible in full against the rental income from that property, with no cap on the interest itself. What is capped is the loss: the amount of loss from house property that can be set off against other heads of income in a single year is restricted, and any excess is carried forward for a limited number of subsequent years to be set off against house property income only. For a highly leveraged let-out property, that restriction is the binding constraint, and it is the single most misunderstood rule in property taxation.

Pre-construction interest — interest paid on an under-construction property before possession — is not deductible as it accrues. It is accumulated and then allowed in equal instalments over several years beginning from the year construction is completed, within the same overall caps.

Joint borrowers can each claim, but only in proportion to their ownership share and the repayment they actually bear, and only if they are both co-owners and co-borrowers. Keep the payment trail consistent with the claim.

The regime matters. The newer tax regime removes or restricts a number of these deductions, most significantly on self-occupied property, while treatment of a let-out property differs again. Whether the deductions are worth more than the lower rates of the alternative regime depends entirely on your own figures, so compute both before choosing — and recompute when your loan, income or regime rules change.

Running the process

A practical order. Pull your credit report and fix any errors before you approach a lender. Work out your real EMI capacity and derive the loan from it, not the other way round. Get an in-principle sanction based on your income before you commit to a property, so you are negotiating from a known budget. Then apply to two or three lenders of different types, close together in time.

Ask each for the full charge schedule in writing, including the conversion fee for a future spread reduction, which is the charge nobody mentions and everybody eventually pays. Negotiate the spread and the processing fee separately. Decline bundled single-premium insurance funded by enlarging the loan, and buy any cover you want separately. Then compare on total cost over your intended tenure rather than on the rate, and keep every document, because you will need the sanction letter the first time a rate reset does something you did not expect.

After disbursement, two habits are worth more than any negotiation. Check what happens to your tenure, not just your EMI, after each rate reset. And prepay in the early years whenever you have surplus beyond your emergency fund, directing it to tenure reduction rather than EMI reduction. All the calculators are free on the tools page, and the companion guide on how to buy a home in India covers the purchase process the loan sits inside.