Different type of interest rates offered for home loans?

Different type of interest rates offered for home loans? 

Interest rates vary from institution to institution as detailed in my 1^st post. The interest on home loans in India is usually calculated on monthly reducing balance. In some cases, daily reducing basis is also adopted.

Annual reducing: In this system, the principal, for which you pay interest, reduces at the end of the year. Thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender through EMIs paid during the year. This means the EMI for the monthly/Daily reducing system is effectively less than the annual reducing system.

Monthly reducing: In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.

Daily Reducing: In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system & is better from the point of view of the customer.

So, before choosing any Institution for taking loan not only go by the lucrative rate of Interest offered by that Institution but also inquire about the balance reducing method applied by the Institution to calculate the actual effective rate of Interest.


To get more clarification on the above article write your queries in the comment.