Photographs: Rediff Archives Salil Dhawan, Investment-mantra.in
How well do you know your home loan. Take this quiz and find out.
1. What is full form of EMI?
a. Equated monthly installment
b. End monthly installment
c. Extracted monthly installment
The correct answer is a. EMI (Equated monthly installment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of a portion of the interest as well as the principal.
Courtesy: Investment-mantra.in
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
2. What is the maximum percentage of the total cost of property that banks provide loan for?
a. 100% of the asset value
b. Approximately 75%-85% of the asset value
c. Approximately 40%-50% of the asset value
The correct answer is b. Home loans are generally provided for in the range of 75%-85% of the asset value. The amount of loan varies from institution to institution and it may vary from Rs 1 lakh to Rs 1 crore. Having said that percentage can vary among home loan lenders as it depends on various other factors.
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
3. Can you repay your home loan ahead of schedule?
a. No
b. Yes
c. Only some lending institution provide this option
The correct answer is b. Yes, definitely you can do that ahead of schedule. Recently a prepayment penalty on floating home loans was abolished by almost all home loan lenders.
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
4. Interest rates are at an all time high. What options do you have as regards adjustment in your home loan?
a. Making a prepayment to reduce the principal
b. Increasing the EMI and/or Increasing the EMI
c. All of above or combination of any
The correct answer is c. As floating home loans increase, you can decide to make a part prepayment of the principle, increase an EMI if you can afford that or the last resort can be to increase the tenure. However combination of first and second works well if you can afford that.
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
5. Can one take a home loan for construction in a city while working in another city?
a. Yes
b. No
c. Only some lending institutions provide this option
The correct answer is a. Yes, you can take loan for construction in one city while working in another city. The HFCs generally service this loan after getting details of the plot legally verified.
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
6. What is true about fixed rate of interest in the context of home loan?
a. Interest rates remain unchanged for the entire duration the loan.
b. One doesn't benefit, even if the rates of interest drop in the market and/or one knows in the beginning only how much EMI one needs to serve for entire tenure of loan without worrying about any interest rate volatility.
c. All of the above
The correct answer is c. Fixed rate loan works well for people who don't like volatility in interest rates and are willing to pay fixed percentage of interest and not fluctuating floating home loan interest rates.
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
7. What is true about floating rates of interest in the context of home loan?
a. This is the rate of interest that fluctuates according to the market lending rate and/ or one gets benefitted if the rates of interest drop in the market
b. One gets benefitted if the rates of interest drop in the market.
c. All of the above
The correct answer is c. Floating rate loans work well for people who can bear extra volatility in interest rates and are willing to take risk of high interest rates cycle during the tenure of loan.
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
8. Generally what factors does a home loan lender take into consideration while processing home loan application?
a. Loan seeker's income, age, qualifications, repayment capacity
b. Loan seeker's credit history
c. All of the above
The correct answer is c. Lenders normally evaluate the customer's repayment capacity while deciding on the home loan eligibility. Repayment capacity is based on factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities, stability and continuity of occupation and savings history. And, of course, one main concern is to make sure that one can comfortably repay the loan amount.
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
9. Can tax benefit be availed on principal and interest components of a home loan?
a. Yes
b. No
c. Only in some particular cases
The correct answer is a. Yes. Resident Indians are eligible for certain tax benefits on principal and interest components of a loan under the Income Tax Act, 1961. Interest repayment of Rs 1,50,000 per annum can get you a tax saving upto about Rs 50,490 per annum. Moreover, you can get added tax benefits under Sec 80C on repayment of principal amount upto Rs 1,00,000 per annum that can further reduce your tax liability by about Rs 33,660 per annum.
Quiz: Test your home loan knowledge
Photographs: Rediff Archives
10. What do you mean by term 'Margin' in the context of home loans?
a. It is the down payment buyer needs to pay at the time of purchase
b. It is same as EMI.
c. It is difference between floating interest rates and fixed interest rates on home loans.
The correct answer is a. Lenders usually give a loan only for upto a certain percentage (example: 80%) of the home/plot value. The remainder of the home/plot value (example: 20%) has to be paid by the buyer at the time of purchase and this is called Margin Amount. Margin is also referred to as down payment.
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