Home loans are designed to make the process of home buying easy and convenient. With the help of home loans, you can purchase your dream home without having to pay the entire amount at once. You can finance your house and repay in monthly instalments. Additionally, home loans come with lower interest rates and simple eligibility criteria.
However, before you start looking out for home loans in the market, it’s crucial for you to understand the basics of a home loan. This will help you in making an informed decision with a clear mindset. Below are some common home loan terminologies explained, which will help you to know home loan basics more easily:
EMIs: EMI is inarguably the most common term within the loan scape. EMIs stands for Equated Monthly Instalments. It refers to the amount a borrower needs to pay to the lender every month in order to repay his/her loan. Home loan EMIs are calculated on the basis of the loan amount, tenure, and the rate of interest. You can use an online EMI calculator to know your home loan EMIs.
Margin: Margin or down payment is a key term in home loan agreements. Essentially, it is the difference between the loan amount sanctioned by the lender and the actual value of the property that is to be purchased. In most cases, lenders sanction up to 80% of the property’s value, and the borrower needs to pay the remaining 20% as margin or down payment.
Credit Appraisal: Before approving a home loan application, the lender checks the borrower’s repayment capability on the basis of several parameters. These include the borrower’s monthly income, age, expenses, personal assets, and existing debts or liabilities, among others. This process, through which a lender checks the creditworthiness of a borrower, is known as credit appraisal.
Loan Disbursement: The process of releasing the loan amount by the lending institution to the borrower is known as loan disbursement. A lender disburses the loan only after receiving all the valid documents from the borrower and checking his/her creditworthiness. Loan disbursement can be of three types – Advance disbursement, Partial disbursement, and Full disbursement.
Pre-approved Property: Before approving a home loan request, lending institutions conduct a sanity check on the property. Some builders get this sanity check done by the lenders in advance to earn a tag of “Pre-approved Property”. By choosing a pre-approved property, you can get your home loan sanctioned in a quick and hassle-free manner.
Fixed and Floating Rate of Interest: Rate of interest is one of the key home loan parameters you should consider before applying for a home loan with a lender. Fixed rate of interest means that the interest rate levied on your home loan will be the same throughout its tenure. Whereas, in case of floating interest rate home loan, the rate of interest imposed by the lender changes periodically.
Post-dated Cheques: Many lending institutions ask for post-dates EMI cheques from the borrowers before sanctioning their home loans. As the name suggests, post-dates cheques are the cheques that are written for future dates. These cheques can be encashed only on or after the date mentioned on the cheque and not before that.
Resale Property: This is a common home loan term which is used when a buyer is buying a property from another property owner and not from the builder. Such properties are termed as resale properties. Such transactions involve a lot of paperwork as the seller needs to transfer the property ownership to the buyer.
Foreclosure or Pre-closure: Foreclosure or pre-closure of a loan refers to a condition where the borrower wants to close his/her loan account by paying off the entire loan amount before the end of its tenure. It is usually done when a borrower has sufficient funds in his/her hand to pay off the loan amount. Lenders may charge a nominal fee for this, which is known as “Foreclosure Charges”.
Collateral: Collateral refers to the asset that is pledged as security by the borrower for availing a loan. In case a borrower fails to repay his/her loan, the lender uses this asset to recover the loan amount. In case of home loans, the property for which the loan is sanctioned is generally kept as collateral. This gives the lender a legal right to sell off the mortgaged property if the borrower defaults.
The Bottom Line: Now that you are familiar with these home loan terminologies, you are better equipped to search for a perfect home loan provider for financing your house. At Poonawalla Housing, we provide Home Loans at competitive rates of interest and with convenient repayment options. For more information about our home loan products and their eligibility criteria, click here.