Home Loan Offers Start From 8.50%,
Home Loan Terms-TerminologiesEach of us dreams of becoming a homeowner at some point in life. The surest way to be financially secure is to have a home to call our own. It is an advantage that stays with us for life, and it is something that we can pass on to our kids, thus ensuring their financial future. Yet buying a home isn't as easy as it might seem.
A home loan can sometimes be a complicated topic to understand. Nonetheless, it is essential to understand the terms to make the right decision when securing a housing loan.
- What is a home loan? A home loan is the amount of money one can borrow at a fixed or floating interest rate from a bank, a non-banking finance company, or a housing finance company. The borrower can repay the amount borrowed in affordable EMIs over a specified tenure, generally up to 30 years. The property must be either personal property or commercial property.
- Home Purchase Loan: The first and most common type of home loan, this type of loan, helps you buy a property, flat, or apartment that is either under-built or completed construction.
- Home Construction Loan: This is a loan obtained from individuals who already own a plot or piece of land to build a home thereon. This loan is ideal for individuals on their plot, looking to create a new house.
- Home improvement loan: A home improvement loan usually covers all expenses related to renovating your home, be it painting, remodeling, repairing leaky ceilings, and electrical repairs, etc. You can either take a higher interest rate with an unsecured home improvement loan or pledge to get a lower interest rate as collateral for your home.
- Plot Purchase Loan: If you want to buy a plot to build your home the way you think fit, You can take out a loan for plot purchases. Usually, such loans borrowed from people looking to develop plantations, bungalows, and villas, and the plot serves as collateral.
- Home extension loan: You can apply for a home extension loan if you want to do some remodeling and add another space, such as a dining room, a storage room or make two smaller bedrooms out of one big bedroom. This loan also lets you add another floor to your existing home.
- Joint home loan: This is considered a joint home loan when two people name it in a home loan. If two applicants listed as co-borrowers for a home loan, you and your spouse will file as joint homeowners and take advantage of tax deductions associated with home loans.
- Home Loan Balance Transfer: A transfer of the home loan balance helps you to pass the outstanding loan amount to another lender, providing lower interest rates and better terms.
- Top-up home loan: If more money is needed that exceeds your outstanding loan sum, you can apply for a home loan to top up.
- Collateral / Security: Because the amount of home loans usually varies from lakhs to crores, borrowers need certain assets as security in case one can not repay the loan. It referred to as collateral. The term security is also used different words for collateral, as the lender uses the asset pledged as security if one defaults in repaying the amount of the loan. A home loan offered against collateral typically comes with a lower interest rate as the guarantee serves as lender protection.
- EMI: EMI stands for Monthly Equated Instalments. In monthly installments, a borrower can repay his loan amount. The EMI is both the principal and interest part of the loan. The EMI amount is pre-calculated, and your lender basis determines the interest rate and tenure associated with the loan. The borrower must continue to pay EMIs until all the principal amount of the loan paid off and interest paid off.
- Tenure: Lenders provide home loans for a given period. You can pay off the principal and interest amount of your home loan in EMIs with mandates that last 20-25 years. Home loans offered for tenures of up to 30 years, in some cases. You'll have to pay high-interest rates if you opt for high tenured home loans.
- Interest: the amount paid to the lender by the borrower, above the principal amount, Borrowers can choose the fixed interest rate and the floating interest rate on their home loan from two forms of interest rates.
- Fixed interest rate: All along with the tenure of the loan, the borrower can repay the home loan at a fixed rate. In such a matter, the monthly installment amount for the entire borrowing tenure remains the same. For thorough budget planners, this rate is ideal.
- Floating interest rate: With market conditions, a floating interest rate fluctuates or changes. If choosing a floating interest rate, you end up paying a different amount of EMI each month, based on the base rate.
- Base rate: The base rate applies to the lender's agreed minimum interest rate. That is the minimum rate that the lender can not sell a home loan below. The floating rate is, therefore, altered every time the base rate adjusts.
- Margin: The word margin is a fundamental concept when it comes to home loan jargon. The phrases margin and down payment are used interchangeably, in the case of home loans.
Margin is essentially the difference between the lender's loan amount and the actual value of the real property. Most lenders typically provide 80 % of the real value of the property, while the borrower must bear the remaining 20 % as a margin or down payment.
- Credit Appraisal: The lender considers your loan request carefully by examining several parameters before your loan is sanction. These include your earnings, savings, age, job status, and credit scores.
- Disbursement: The process of releasing the lender's loan amount to the borrower, considered to disbursement. The loan amount paid out after the lender, and the loan has received all the documents that have approved. There may be three types of disbursement:
- Advance disbursement: This applies to the total disbursement before the completion of a project. Advance disbursement made on request on the understanding that the project will be completed within the stipulated time frame by a builder.
- Partial disbursement: This is when only a partial or restricted portion of the amount of the loan issue to the borrower.
- Full disbursement: This is known as full disbursement when the lender disburses the entire amount of the loan in one go.
- Pre-EMI: EMI payments commence after an entire loan disbursed. Until then, the creditor must pay an interest rate on the partially disbursed amount to the lender, called Pre-EMI.
- Offer Letter: Often referred to as the letter of approval, this is the official notice sent by the lender confirming that your loan application considered.
Usually, the offer letter includes information about the amount of the loan, interest rate and form, period of the loan, monthly payments or sum of EMI, terms, and conditions, etc. A letter of offer is valid only for six months in which you have to complete the formalities for the loan.
The term of the offer letter does not mean that the loan will disburse. The balance of the loan shall disburse after the lender assure that the property and documentation are in order.
- Post-dated cheques: You must give pre-dated or post-dated cheques which the lender will cash on your EMI date.
- Pre-approved property: They perform a health check until lenders accept a loan request. They carry out some due diligence on their own regarding the property you wish to buy, the builder, the project, etc.
They must ensure there are valid titles to property. In several cases, lenders bond with builders, properties, or projects in which case the lender may consider the property pre-approved
- Resale property: This is a term used for home loans when one buys a house from another homeowner who sells the land. Hence, it is considered a resale property.
- Loan-to-value ratio: The commonly abbreviated loan-to-value ratio as LTV signifies that the loan volume divided by the property's total value. Therefore if you take out a loan of 80 lakhs for a one crore house, the loan ratio will be 80%.
- Pre-closure: In case that a lender has sufficient amounts to close a loan before his selected term, he can opt for pre-closure or foreclosure. He will make a bulk payment to settle his loan. He may or may not be liable for a penalty fee on closing the loan before the specified term, based on the amount of the loan he has paid.
That gives the lender the legal right to reclaim the outstanding loan balance by selling off the property in question if a borrower refuses to repay the loan.