subject: Home loan terms – Do you know [print this page] Home loan terms Do you know Home loan terms Do you know
These are home loan terms which every home loan buyer should be aware of. Know the terms used in home loan parlance.
EMI (Equated Monthly Installments)
It is one of the most important home loan terms. It is the monthly installment you will have to pay every month in order to repay your loan. It comprises of unequal combination of your loan amount (principal) and the rate of interest.
Margin or Down payment
It is the initial payment which a home loan buyer pays to the seller. Normally banks pay 80-90% of the actual value of the property. The remaining value of the property has to be paid by the buyer. This is called as down payment or Margin.
Resale property
As the term specifies, it is second sale and not a new property. If you are buying a home from someone who already owns it and is selling it, this is referred to as a resale.
Credit appraisal
Home loan provider normally checks the credit worthiness of the buyer before granting home loan. Savings, income, age, qualifications, nature of work and work experience are some of them. Existing loans/liabilities are also taken into consideration for credit appraisal.
Pre-approved property
It means the property has been approved by the housing finance companies. Many builders get their properties pre-approved by home finance companies. The housing finance company examines all the legal documentation and approvals and if all the documents are genuine, the builder will get a stamp of approval.
Partial disbursement
Disbursement means the payment of the loan amount by the bank to the property buyer. Partial disbursement means payment of the loan in tranches. Partial disbursement is applicable if the property is under construction. The money will be released in stages by the bank to the builder.
Advance Disbursement
Normally if a house is still under construction, then a partial disbursement is made. In certain cases, the housing loan company may be willing to make the entire payment even if the construction is not fully complete.
Advance Disbursement is possible under the below scenarios -
i. If the buyer requests the home loan company to do so.
ii. If the housing loan company is fairly convinced the builder will complete the construction on time.
Pre-EMI
A borrower start paying EMIs only after the final disbursement is complete. However the borrower needs to pay the housing loan company a rate of interest on the amount partially disbursed. This interest is called pre-EMI.
PDCs
Post-dated cheques are cheques dated ahead of time and cannot be processed till the date indicated.
Floating Rate of interest
Floating interest rate home loans are tied up to a base rate plus a floating element thereof. So, if the base rate varies the floating interest rate also varies.
Fixed rate of interest
Fixed interest rate home loans allow the repayment in fixed equal monthly installments over the entire period of the loan. The interest rates in such a case is fixed and doesn't change with market fluctuations.
Processing charge
It's a fee payable to the lender on applying for the loan
Prepayment Penalties
If you repay the loan earlier before the pre-agreed time, then banks/ institutions charge penalty for the prepayment
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