Top 12 Terms You Must Know Before Taking Home Loan!

1. What is Margin?

In 2010, RBI set a ceiling limit on home loans which limits the amount of loan one can take against property to 80% of the property value. This means that while the bank pays 80% of the total cost of your property, the remaining 20% needs to be paid by you. This remaining amount is referred to as margin or down payment.

2. What are an Offer/ Sanction Letter?

An offer letter is a formal confirmation from the bank stating that it has agreed to consider you as one of its loan customers. It does not confirm sanction of home loan. The loan will be disbursed after a verification of all legal documents and eligibility of applicant.

3. What are Post Dated Cheques?

Taking PDCs for home loan repayments is a common practice banks. These cheques are addressed to the bank, state the exact EMI amount and are signed by you.

4. What is Disbursement?

Disbursement means payment. It refers to the release of loan amount to borrower by lender. Usually, banks disburse the loan amount once all the submitted documents have been verified and the down payments have been paid.

5. What are Equated Monthly Installments (EMIs)?

EMI is the repayment you make to your lender every month. It is an unequal combination of your principal repayment and interest payments.

6. What is Pre-EMI?

When you buy property which is under construction, loan amount is partially disbursed to the builder. When a loan is partially disbursed, only interest payments are made on that amount.

7. What is Resale Property?

When you buy property from someone who already owns it before, it is termed as resale. It indicates that you are not buying a new home straight from the builder and are not the first owner of that property.

8. What is meant by Pre-approved property?

Now days, several builders get their projects pre-approved by lending institutions. A pre-approved property means that the concerned financial institute has verified all legal and technical documents of the project and has found them in order.

9. What is Credit appraisal?

Credit appraisal is a check on the applicant’s financial situation to determine eligibility for home loan and the maximum loan amount. Credit worthiness of an applicant assures his repayment capacity.

10. How is Pre-Payment of loan beneficial?

When a borrower chooses to make lump sum repayment of loan, it is termed as pre-payment. Pre-payments are beneficial as they help get rid of debt faster by reducing loan tenure.

11. What is Security in a loan?

Security is the asset provided by borrower while taking loan. In this case, the property being purchased serves as asset for home loan. If you fail to repay the loan due to certain circumstances, the bank can sell this property or convert it into an asset to recover loan amount.

12. Processing & Administrative Fees

Every bank charges processing and administrative fees for processing the documentation of your home loan. On an average, the fee ranges from 0.5% to 2% of loan amount.  Though it seems like a small percentage, it can add considerable weight to your home loan costs.

[Source: http://www.switchme.in/blog/2014/04/all-you-need-to-know-before-taking-home-loan/]