A few important aspects you need to go into.

• Scheme of loan

Whether the loan is a fixed or floating rate one. As is common knowledge, in case of floating rate loans, the interest rate will move up or down with each revision in the benchmark rate of the bank. In case of a fixed rate loan, the interest rate may remain fixed for either a given period of time or entire tenure of the loan.

• Rate benchmark

In case it's a floating rate loan, what the rate is benchmarked against is important. Usually, floating rates are determined with reference to the prime lending rate (PLR), fixed at the time of taking the loan plus a mark-up. If your home loan is at a spread of one percent to the PLR, which is say 10 percent, you will pay an interest rate of 11 percent per annum.

How often the bank changes the benchmark rate should be checked. Banks periodically revise the PLR to which the home loan interest rate is pegged.

If one has opted for a fixed rate loan, it is to be checked whether the interest is fixed for a part of the tenure or the entire tenure. Do check the reset clauses. The bank normally reserves the right to revise the interest rates upwards or downwards, once in three or five years, even on a fixed rate loan.

• Charges

Also check whether the loan can be prepaid, and if so, what the charges are. It may be a fixed fee, a percentage of the loan outstanding, or a percentage of the loan amount. Further, there may be a restriction on the number of prepayments you can make during the tenure of the loan.

Check what the other charges you will be required to pay to get the home loan are. There could be a fee for processing, services, and administration.

Home loan borrowers have experienced a rollercoaster ride of highs and lows over the past few years. The interest rates hovered around six to seven percent about four years ago. Until a few weeks ago, they had touched 13-14 percent. Today, some banks offer a modest eight percent home loan interest rate. The fluctuations in interest rates have an impact on a borrower's EMI dues and loan tenure.

Scenario 1: When rates go up

Increase in the interest rates translates into greater burden on the borrower. The borrower has to pay more from his pocket towards his home loan. When rates go up, the borrower has the option to either increase his EMI or tenure. Increase in EMI keeping tenure constant means greater cash outflow every month towards your loan. Increase in tenure keeping EMI constant amounts to increasing the number of years you'll be repaying the loan.

Scenario 2: When rates go down

A reduction in rates is good news that borrowers yearn to hear. When interest rates go down, the monthly EMI amount comes down automatically. Otherwise, the borrower can keep the EMI constant and bring down his loan tenure. This way he will be free of debt sooner.

Scenario 3: When you switch

When a borrower switches from fixed to floating, or vice versa, the EMI and loan tenure depends on the principal outstanding. The new rate of interest applicable after you pay the conversion fee also determines the quantum of loan. The borrower could fix at a higher rate or float at the prevailing market rate. It is up to the borrower to adjust the EMI or tenure of the loan to his convenience.