When you buy a property in Lucknow and elsewhere in India, the idea of a home loan is the perfect way to reduce the financial burden and to get the required money to be able to afford a home. There are so many high-quality projects coming up in the city and therefore, the number of people who are opting for home loans in on the rise.
There are some finer details that one needs to take care of when taking a home loan to invest in Real Estate Lucknow. There are a number of cases where people have taken loans, even enjoyed the no-EMI period till the possession of the property is completed. Once you move into your own home, or even rent out your newly acquired property, the EMI starts.
At this time, the general understanding is that the EMI amount will start to accommodate the mix of principal amount and interest component. In the coming times, as the principal amount tends to go down, the interest portion should also be adjusted and hence the EMI’s paid later would have higher principal repayment component than the interest apart.
This is true only partially. Many customers of home loans realise that their interest part is high for much of the year. This can add additional burden and literally take the joy out of owning the New Property!
The main reason is the method by which banks calculate the EMI. One needs to check the details of the home loan document carefully. Else, before taking the loans, one must question and understand the terms and conditions carefully and go over them with the bank representatives carefully.
There are two ways in which the home loan is calculated. One is a yearly reducing loan and the other is the monthly reducing one. The calculation time is a time for recalibrating the principal vs. interest component of your home loan EMI’ Since the EMI amount does not change, it if often done without your knowledge, unless you follow the details very closely.
A monthly reducing loan will recalculate your outstanding interest based on outstanding principal amount every month. Hence, it is up-to-date till the last instalment that you have paid. With the principal amount shrinking monthly, this is quite beneficial.
On the other hand, a yearly reducing balance will check for outstanding principal amount only one a year and charge you flat interest against this amount for the whole year. In practicality, you keep paying interest against the principal amount that you have paid back in the course of the year! This is what you should watch out for.
In fact, make sure that you get monthly statements or close tracking of your home loan at regular intervals to ensure that you understand the financial implications of your hard-earned precious money. This is even more crucial when you have enabled auto-deductions of your instalments.
Be smart and enjoy returns from your investment!