Terms associated with Home Loan

Down payment or Margin

Because houses are expensive, home buyers typically pay  a percentage % of the total value of a home. The remaining price is covered by a bank or other financial institutions through a mortgage or home loan. The amount that a home buyer pays is called as down payment or Margin. For example if you plan to purchase a property worth 80 lakhs, and the bank can fund up to 80% of total amount, which is 64 lakhs. You will have to pay remaining 16 lakhs.  In Jul 2010, RBI set a ceiling limit on home loans to  80% of the property value. But  in case of small value housing loans, up to Rs 20 lakh, home loan lending institutions can provide loans up to 90% of the property value, as such loans are part of priority sector advances.  Please note Down payments usually do not include costs such as registration charges, stamp duty costs etc.

What is Resale Property

Resale means you are not buying an apartment in a building under construction, or a ready flat, directly from the builder.  Instead, you are buying a flat from the owner. While buying resale property, one should make sure that it has clear marketable property title , it has  record of all previous owners of property and the reseller has undisputed ownership. One should also check for the existing loan on the property and be aware of the amount that is to be paid to the society at the time of transfer of ownership

What is Freehold Property? What is Leasehold property?

A freehold property means that you own the land it is built on and also the house. For apartments, ownership of the plot is shared jointly with the other owners of the respective flats within the building in proportion with the ratio of the area owned of the consolidated built-up area. In a freehold property. You can live there for as long as you desire. You have the right to make alterations to the house or redo some parts of the house though You might have to take permission from authorities if you have to make structural changes.

If you purchase a leasehold property, then you have the right to live in a property for a predefined period of time. One is not the owner of the property or the land it is situated upon and has to pay ground rent to the owner or the leaseholder. Once the defined period in the lease expires, the ownership of the property is given back to the land owner. Mostly leases are roughly given for period of 99 years, It is possible to extend the leasehold to up to 999 years and one can also purchase the leasehold property by paying a price for it.. Before buying a leasehold property, find out how long the lease is.

What is Pre-Approved Property?

Interest: What are EMI, Fixed and Floating Rate?

When you take the loan you have to pay interest on it.  Equated Monthly Installment (EMI) is the amount payable to the Lending institution every month till the Loan is paid back in full. The EMI consists of Principal and Interest. During the early part of loan tenure the most of EMIs are used to service the interest and principal is served in the later parts of loan tenure. Our article Understanding Loans explains EMI in detail.

Amortization schedule is a table that gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time.

Interest can be Fixed or Floating.

In Fixed Rate Loan rate of interest is fixed either for the entire tenure of the loan (called as pure fixed loan) or a part of the tenure of the loan. In pure fixed loan, the EMI remains same irrespective of the conditions prevailing in the market Mostly banks offer Fixed rate for a fixed period and then review the rate at end of the specified period.  So banks introduce reset clause in their fixed home loan to effect a change in the interest rate at a future date. The banks have the discretion to increase or decrease the House Loan Interest rates in case the market rates of interest increases or decreases. So such fixed rate loan is not fixed in the strict sense of the word.

Floating rate means interest rate on loan is not fixed, it varies with the market conditions over the period of loan. Floating interest rate home loans are tied up to a base rate plus a spread or margin. Banks are not permitted to lend below base rate, if the base rate varies the floating interest rate also varies.

[Source: http://www.bemoneyaware.com/blog/terms-associated-with-home-loan/]