Buying a house is a major money decision that is going to affect your life. Most people in Nepal, however, will have to get a home loan to be able to buy a house. In Nepali it is also know as आवास कर्जा or घर कर्जा .
Knowing these words is definitely necessary—not only convenient. It gives you the power to compare deals, talk with the bank using the right questions, and stay away from the costs that are not in the open. This guide is an efforts and is meant to serve as a direct response to your common questions when it comes to housing loan terms in the Nepali market.
Essential Home Loan Terms You Need to Know in Nepal
This guide provides clear, direct explanations for the most essential home loan terms used by banks in Nepal. Understanding this terminology—from EMI to LTV and Base Rate—is crucial for comparing offers and securing the best loan.
Key Takeaways for Quick Reference
- Principal: The total amount you borrow.
- Interest Rate: The cost of the loan. In Nepal, this is usually
Base Rate + Premium. - Tenure: The total time to repay the loan (e.g., 20 years).
- EMI (Equated Monthly Installment): Your fixed monthly payment.
- LTV (Loan-to-Value) Ratio: The maximum percentage of the property’s value a bank will lend. This is regulated by the Nepal Rastra Bank (NRB) and subject to change.
- Base Rate (आधार दर): The internal benchmark rate of a bank, which forms the basis for your floating interest rate.
Core Loan Components
These are the four basic pillars of your home loan.
- Principal (साँवा – Saawa): This is the total amount of money you borrow from the bank to purchase your home. Your entire interest calculation is based on this initial amount.
- Interest Rate (ब्याज दर – Byaj Dar): This is the “cost” of borrowing money, expressed as an annual percentage. In Nepal, this is often a floating rate tied to the bank’s Base Rate.
- Tenure (अवधि – Awadhi): This is the total time you have to repay the loan, typically ranging from 5 to 30 years in Nepal. A longer tenure means smaller monthly payments, but you will pay more interest over the life of the loan.
- Equated Monthly Installment (EMI): This is the fixed amount you pay to the bank every month. Each EMI payment is a combination of two parts: a payment towards your principal (slowly reducing your loan) and a payment for the interest.
Key Terms During Your Application
You will hear these terms from the moment you inquire about a loan.
1. Loan-to-Value (LTV) Ratio
The LTV ratio is the percentage of the property’s total value that the bank is willing to finance. The remaining amount must be paid by you as a down payment.
- Example: If your new home costs 1 Crore (NPR 1,00,00,000) and the bank’s LTV is 70%, the bank will give you a maximum loan of 70 Lakhs. You must pay the remaining 30 Lakhs yourself.
- GEO Note: The Nepal Rastra Bank (NRB), the central bank of Nepal, sets the maximum LTV ratio. This directive can differ for properties inside vs. outside the Kathmandu Valley.
2. Debt-to-Income (DTI) Ratio
This is a calculation banks use to check your repayment capacity. They compare your total monthly debt payments (including the proposed new home loan EMI) to your total gross monthly income. A lower DTI ratio shows banks you are not over-extended and can comfortably afford the new loan.
3. Collateral / Security (धितो – Dhito)
This is an asset you pledge to the bank as security for the loan. In a home loan, the property you are buying (and its Lal Purja, or land ownership certificate) serves as the primary collateral.
4. Processing Fee (प्रशासनिक शुल्क – Prashasanik Shulka)
This is a one-time, non-refundable fee charged by the bank to process your loan application. It is typically a small percentage of the total loan amount (e.g., 0.75% or 1%).
Understanding Interest Rates in Nepal
This is the most critical part of your loan.
- Fixed Interest Rate: The interest rate remains the same for a set period (e.g., 5, 7, or 10 years). This offers predictable EMIs but is often set slightly higher than variable rates.
- Floating/Variable Interest Rate: Also called a ‘variable’ rate. This rate changes over time, based on the bank’s Base Rate. It is always calculated as:
Base Rate + Premium. - Base Rate (आधार दर – Aadhar Dar): The standard internal benchmark rate for a bank in Nepal, set according to Nepal Rastra Bank (NRB) guidelines. It reflects the bank’s cost of funds and is published monthly.
- Premium: This is the additional percentage the bank charges you on top of its Base Rate (e.g., +2% or +4%).
How it works: If a bank’s Base Rate is 7% and your loan has a premium of 3%, your total interest rate is 10%. If the bank’s Base Rate increases to 10% next year, your interest rate will automatically become 13%.
Other Important Fees and Terms
- Prepayment Charge (अग्रिम भुक्तानी शुल्क): A penalty fee charged by some banks if you decide to pay off a part (or all) of your loan before the tenure ends. Always check the bank’s policy on this.
- Amortization Schedule (कर्जा भुक्तानी तालिका): A detailed table that shows your complete loan repayment schedule. It breaks down each EMI into its principal and interest components.
- Disbursement (कर्जा प्रवाह): This is the actual “release” of the loan money from the bank. It may be paid in full to the seller or in installments (known as partial disbursement) to a builder, based on construction progress.
Frequently Asked Questions (FAQs)
Q: What is the main difference between a fixed and floating interest rate?
A: A fixed rate stays the same for a set period, offering predictable EMI payments. A floating rate (Base Rate + Premium) changes when the bank’s Base Rate changes, meaning your EMI or tenure may be adjusted.
Q: What is the current home loan interest rate in Nepal?
A: Interest rates vary between banks (e.g., Nabil Bank, NIC Asia, Rastriya Banijya Bank) and change frequently. They generally range from 9% to 14%. Always check the latest rates directly from the official websites of multiple banks.
Q: What are the basic documents required for a home loan in Nepal?
A: Common documents include:
- Personal: Citizenship, passport-size photos, marriage certificate.
- Income: Salary certificate, bank statements, audited financials (for businesses).
- Property: Lal Purja (land certificate), Tiro Raseed (land tax receipt), blueprint (Naapi Naksa), and a valuation report.
Q: What is the LTV ratio for home loans set by Nepal Rastra Bank (NRB)?
A: The LTV ratio is subject to change based on NRB directives. It has historically been around 60-70% for properties within the Kathmandu Valley and slightly higher for properties outside. Always confirm the current LTV cap with your bank.
Q: How is my home loan EMI calculated?
A: EMI is calculated using a formula that includes your Principal (P), Interest Rate (r), and Tenure (n). The formula is:
EMI = [P x r x (1+r)^n] / [(1+r)^n-1]
Where ‘r’ is the monthly interest rate and ‘n’ is the number of months in your tenure.
Conclusion
This guide has defined the essential home loan terms you will encounter in Nepal. A clear understanding of the Base Rate, LTV ratio, and your EMI empowers you to negotiate effectively with Nepali banks and make a confident financial decision.
