8 things one should understand before applying for a home loan

Most of the home loan applicants come to know about the requirements and terms after applying for it. Let us look at some of the most important terms that the applicant should know before applying for a home loan. In this article we have tried to clear some of your doubts on various terms that are used in home loan.

Principal Amount

It’s the home loan amount which bank handed over to you for your investment in home. Based on this amount your interests are calculated. If your home cost is Rs. 30 Lakhs and out of that Rs. 20 Lakhs is contributed by bank then the principal amount is Rs. 20 Lakhs which you have to pay back within your tenure. 

Down Payment or Margin Money

8 things one should understand before applying for a home loanTo know your credit worthiness, bank will also ask you to contribute certain portion of your total requirements which can be within the range of 15%-25% based on bank’s policy and your credit history. The amount that is contributed by you will be called down payment or margin money. Principal amount will be equal to the total amount invested in home minus down payment or margin money.


Co-applicant means, some one else is applying along with you jointly for a home loan. It’s also known as Joint applicant. If your eligibility is not enough to meet your requirements then you can apply for a joint loan along with your wife or any of your family members whose income along with yours meets the eligibility. In joint loan cases, banks use to take both applicants’ income in order to find out the amount that can be sanctioned to them.

Interest rate

Interest rate is the most critical part on the basis of which you have to choose your bank to take home loan. Based on the interest rate, your bank will be charging interest on the principal amount on you. Such interest amount is to be paid regularly along with the principal amount. Interest rates are also of two type’s i.e. fixed and floating interest rate.

Also Read: Fixed or floating interest rate which one is better


Tenure is the period within which you repay your home loan amount. It will have an impact on your monthly repayment. If you and your bank has decided that you will be paying back home loan amount in 20 years from now then your tenure is 20 years.


Based on your tenure, interest rate and loan amount, banks are calculating equated monthly installments or EMI, which you have to pay back to the bank every month. If you reduce your tenure then EMI will go up. Similarly if you increase it then EMI will come down.

Prepayment of your home loan

When you make early payments apart from your EMI before the due date it will be called as prepayment. Prepayment will reduce your home loan liability and it also reduces your interest by which EMI will come down.

Also read: Prepayment of your home loan – to repay or not to repay

Processing and other Fees for your home Loan

To process your home loan, bank charges certain amount known as processing fee. This charge is different from bank to bank. In addition to processing fee, banks are also charging late payment fee for delay in paying EMI and other charges like fee for Cheque bounce. You can negotiate with the bank on this or chose a bank where these fees are less.

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.