What a home loan is
A home loan, or mortgage, is money a bank lends you to buy, build or renovate a house, with the property as security. If you stop paying, the bank can take legal steps to recover its money from the property. In Pakistan this is usually called house financing. Islamic banks offer it under Shariah-compliant structures instead of interest-based lending.
A home loan has these parts:
- Property price. The price of the house or plot, plus any construction cost the bank agrees to finance.
- Down payment. The part you pay from your own money at the start, sometimes called the equity contribution.
- Financed amount. Price minus down payment. You repay this to the bank.
- Rate. The interest (or, in Islamic financing, the rent or profit) charged on the outstanding amount.
- Term. How long you take to repay, usually stated in years and paid in monthly instalments.
If loans are new to you, read How Loans Work alongside this page.
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Run your own numbers
The calculator works out the monthly payment from the price, down payment, rate and term. It also shows the total you pay over the life of the loan and what share of your income the payment takes. Use the rate a bank actually quotes you, not a guess.
Fill in the empty fields to see the result.
| Year | Interest paid | Principal | Balance |
|---|
Loan = price − down payment; payment by the annuity formula A = P × i / (1 − (1 + i)^−n). Bars: principal (yellow) and interest (grey) per year. Fees, insurance and rate changes are not included.
Change the inputs one at a time. You will see how strongly the term and the rate change the total cost, even when the monthly payment looks manageable.
Down payment
Banks rarely finance the full value of a property. They set a maximum financing share, and you pay the rest up front. The exact share depends on the bank, the product and the type of property.
A larger down payment:
- reduces the financed amount, so the monthly payment and total markup are lower;
- leaves you less exposed if property values fall;
- can make approval easier, because the bank carries less risk.
Keep your emergency savings separate from the down payment. If the down payment empties your savings, a job loss or a medical bill can make it hard to pay the instalments. See Emergency Fund.
Also budget for costs on top of the price: property transfer charges, stamp duty, registration, valuation and legal fees, bank processing charges and insurance. Ask the bank for a written list of every charge.
Fixed vs variable rate
This decision affects your payments more than any other.
Variable (floating) rate
Most house financing in Pakistan is priced as a benchmark plus a margin. The benchmark is usually KIBOR, the Karachi Interbank Offered Rate. The bank adds its own spread on top. The rate is reset at intervals set in the contract, and your instalment changes with it.
KIBOR tends to follow the State Bank of Pakistan policy rate. The latest decision on record is: SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC). When the policy rate goes up, floating-rate borrowers usually see higher instalments at the next reset. When it goes down, instalments usually fall. Background on how these rates connect is on SBP rates and economy.
Fixed rate
With a fixed rate, the rate stays the same for an agreed period, sometimes the whole term. Your payment is predictable. Fixed-rate products often start at a higher rate than floating ones, because the bank takes on the risk of rates rising. Some products are fixed for an initial period and then switch to floating. Read the contract to see exactly when and how the switch happens.
What to test
Run the calculator with the quoted rate, then again with a noticeably higher rate. If the higher payment would strain your budget, a floating-rate loan carries a real risk for you. Rates can rise for long periods, and the contract does not protect you from that.
Term
A longer term lowers the monthly payment but raises the total amount you repay, because markup is charged for more years. A shorter term costs less overall but needs a higher monthly payment.
How the payment is split also matters. With equal (annuity) instalments, early payments are mostly markup and later payments are mostly principal. Compare the two methods on Loan Payment Types. If you may want to pay off the loan early, check the prepayment terms and any charges first. See Early Loan Repayment.
Affordability
Banks look at your income, your existing debts, your job stability and your credit record. A key measure is the debt-to-income ratio: your total monthly debt payments divided by your monthly income. Each bank sets its own limit. The calculator shows the payment-to-income ratio for the home loan alone. Add your other loans and card payments to see the full picture on Debt-to-Income Ratio.
Your record with the credit bureau also counts. Late payments on cards or other loans can lead to a refusal or worse terms. See Credit Score.
The bank's limit is a ceiling, not a target. Check what is left each month after the instalment, household costs and savings, and allow for inflation pushing up living costs over the years (Inflation and Savings).
Comparing offers
To compare banks fairly, use the full cost, not only the headline rate:
- the benchmark, the spread and the reset frequency;
- processing, valuation, legal and insurance charges;
- prepayment and late-payment charges;
- the total repayable over the term.
Effective Loan Rate and APR and Effective Rate explain how fees change the true cost.
Islamic house financing
Islamic banks commonly use diminishing musharakah. The bank and the customer co-own the property. The customer pays rent on the bank's share and buys that share gradually until they own the whole property. Rent is often benchmarked to a market rate, so payments can still change over time. Ijarah-based structures are also used. More context: Islamic finance and Payments, tax, Islamic banking.
Mera Ghar Mera Ashiana
Mera Ghar Mera Ashiana is the name of a government-backed housing finance scheme for home buyers. Eligibility, financing limits, markup and participating banks are set by the government and the banks, and they can change. Check the current terms with a participating bank or the official announcement before you plan around them.
Frequent questions
What is the minimum down payment for a home loan in Pakistan?
It depends on the bank and the product. Ask each bank for its maximum financing share and its full list of charges.
Is a fixed or variable rate better?
Neither is right for everyone. A fixed rate gives predictable payments. A variable rate moves with the market, so payments can rise. Test both in the calculator at higher rates before you decide.
Why does a longer term cost more?
Markup is charged on the outstanding balance for every month of the loan. More months means more markup in total, even though each instalment is smaller.
Where do I find current rates?
Ask banks for written quotes and check the SBP policy rate on SBP rates and economy. This page does not publish bank rates.
Can I repay early?
Many loans allow it, but some charge a prepayment fee. Read the contract and see Early Loan Repayment.