To fulfil the dream of becoming a homeowner there are chances that you will want to avail a home loan. You decide to go in the market and search for a home loan which is best suited according to your needs. Availing home loan has become easy these days but there are few terms related to a home loan which are difficult for some people to understand. So, here are a few home loan terms decoded.
- Margin – Margin is a very significant term in a home loan. The term margin and down payment is used interchangeably. Margin is the loan amount approved by the lender and actual value of the property. As per the RBI guideline, lenders can only provide a loan of 80% of the property’s total value.
- Offer Letter – Some lenders might also call it a sanction letter. It is a letter which is lender by a bank mentioning that they have approved the loan after considering the eligibility criteria. This letter is valid for 6 months. If a loan is not taken within 6 months of receiving the offer letter than the procedure is started from the beginning.
- Post-Dated Cheque – These are the cheque which is written for a future date. This practice is followed by banks in the EMI payments of home loans.
- Security – Security is an asset which is kept by a borrower with a bank as collateral. In case a borrower fails to repay the loan, the loan amount is compensated by auctioning the asset.
- Loan to value ratio (LTV) – Loan to value ratio is a value which is the proportion of the of the property value that lender can sanction as the loan amount. For example, if loan amount is Rs 30 lakh and the value of the property is Rs 80 lakh then the LTV will be 62.5%.
- Interest – It is the amount which is paid by a borrower to the bank in the form of EMI. The EMI consists of part of principal amount and part of the interest amount. A borrower can opt for two types of interest, floating and fixed.
- Disbursement – Disbursement means that the loan amount will be credited in the account of a borrower. The loan amount is disbursed in an account which is mentioned by a borrower in an application form.
- Full Disbursement – It is a full loan amount which is credited in borrower account in one transaction.
- Partial Disbursement – This term is used when the lender disburses only a portion of the loan amount in a borrowers account.
- Advanced Disbursements – In case a borrower needs money before the completion of project, a borrower can request for advanced disbursement. In this situation, the whole amount is a credit to a borrowers account before the project is completed.
- Equated Monthly Instalments (EMI) – EMI is the monthly payments a person who has taken the money from the bank has to make. This payment are made towards the loan to repay it to the bank. A borrower starts paying EMI from the month loan account is opened with bank.
- Pre-EMI – Pre-EMI is an EMI which is made on the partial disbursement of the loan, this is possible when a property is under construction. The interest is calculated only on the disbursed amount. paid After a partial disbursement of a loan, only interest payments will be made on that amount.
- Resale Property – It is a term which is used when a person buys a property which was owned by somebody else before. This means that it is not a newly built property.
- Pre-Approved Property – Pre-Approved properties are those properties which have the marketable title as per legal and tech formalities called The Title Search report (TSR) by the bank for sanction of a loan.
- Credit Appraisal – It is an evaluation done by the lender to check if borrower’s financial status makes him/her eligible for a bank loan.
Conclusion: These terms will come very handy if you are looking to avail a home loan from a lender, especially if you are new in the market.