Housing loan
Also called: Home loan · Topic: Rural Credit, Microfinance and Financial Inclusion · NCERT: Class 10, Ch 3 "Money and Credit"
Meaning
A housing loan (home loan) is a bank loan taken to buy a house. The borrower repays it in monthly instalments with interest, called EMIs (equated monthly instalments). The bank keeps the papers of the house as collateral and returns them only after the loan is fully repaid. The monthly instalment is worked out with this formula:
EMI = P × r × (1+r)^n ÷ [(1+r)^n − 1]
Here P is the loan amount, r is the monthly interest rate and n is the number of months.
Example
Megha takes a housing loan of ₹5 lakh for 10 years at 12% a year (Class 10). She submits employment records and proof of salary as documents. Using r = 1% a month and n = 120 months, her EMI is about ₹7,174. Over 10 years she repays about ₹8.6 lakh in total, of which about ₹3.6 lakh is interest.
Don't confuse with
- Mortgage: the use of property as security for a loan. A housing loan is one type of loan, and it is secured by a mortgage on the house.