Loans
Home Loan in India: How It Works
Last updated 17 June 2026How a home loan works
The lender finances most of the property cost (commonly up to 75–90%, depending on the loan amount and rules), and you fund the rest as a down payment. You repay in EMIs over a long tenure; in the early years most of each EMI is interest, which is why early prepayments save so much. Rates may be floating (linked to an external benchmark like the repo rate) or fixed for a period. See how the repo rate works.
Estimate your EMI for any amount, rate and tenure with the EMI calculator.
What drives eligibility and cost
| Factor | Why it matters |
|---|---|
| Income & stability | Sets how large an EMI you can support |
| CIBIL score | A strong score lowers your rate; see a good CIBIL score |
| Loan-to-value (LTV) | The share of property value financed; the rest is your down payment |
| FOIR | Existing EMIs plus the new one must stay within a comfortable share of income |
| Tenure | Longer tenure lowers EMI but raises total interest |
Worked example
On a ₹40,00,000 home loan at an indicative 8.5% for 20 years, the EMI is roughly ₹34,700 and the total interest over the full term is large — often comparable to the principal itself. Prepaying even a few EMIs a year, or making lump-sum prepayments early, can cut years off the loan and save substantial interest.
Common mistakes
Stretching the tenure purely to lower the EMI; ignoring the down payment and registration costs in your budget; not comparing the spread over the benchmark across lenders; and never prepaying — which leaves most of the interest cost intact.
Frequently asked questions
How much of the property cost can I borrow?
Lenders typically fund up to about 75–90% of the value depending on the loan size and rules, so plan for a down payment of at least 10–25% plus registration and other costs.
Should I choose floating or fixed rate?
Most Indian home loans are floating, linked to an external benchmark such as the repo rate, so the EMI moves with rates. Fixed rates give certainty but are usually higher. Choose based on your risk comfort.
Does prepaying really help?
Yes — because early EMIs are mostly interest, prepaying early cuts total interest sharply and shortens the tenure. Floating-rate home loans usually have no prepayment penalty for individuals.
What CIBIL score do I need?
A score of 750+ generally secures the best rates. A weaker score can still get approved but often at a higher rate or lower LTV.
Are there tax benefits?
Home loans can offer tax deductions on principal and interest under the Income Tax Act, subject to conditions and the regime you choose. Verify current limits with a tax professional.
Sources
- Reserve Bank of India (RBI) — external benchmark lending and LTV norms, accessed 2026.
- Income Tax Department, India — home loan deductions (verify current limits), accessed 2026.