10 Important Home Loan Terms You Must Know Before Opting for This Loan


A home loan is designed to make the procedure of purchasing a home convenient and easy. With the assistance of a home loan, you can buy your dream home without the need to pay the whole amount at once. You can easily fund your home and repay in monthly EMIs. Moreover, home loans come with lower rates of interest and simple eligibility parameters.

However, before you begin your journey with a home loan, whether it is with Shubham Housing Finance or Piramal Housing Finance or any other lender, it is important for you to understand all the basics linked with a home loan. This would assist you in making an informed choice with a clear mind. Listed here are some of the common terminologies linked with a home loan you must be aware of before opting for a home loan –


Loan EMIs – This is inarguably one of the most common and popular terms in the loan vertical. The full form of EMI is equated monthly instalments. This refers to the amount that you require paying to the bank lender every month to repay your home loan. You may calculate your home loan EMI using the online home loan calculator. This calculator requires you to input details like loan amount, repayment tenure and interest rate to compute your overall interest outgo and EMI.


Margin – This term means the down payment, which is a major term of a home loan agreement. Basically, it is the distinction between the loan proceeds sanctioned by lenders and the actual property value that is to be bought. In many cases, lenders process up to 80 per cent of the value of the property, and you require paying the rest 20 per cent in the form of a down payment, also called a margin.


Credit appraisal – Before home loan application approval, the lender checks the repayment capacity of the borrower depending on various parameters. These involve your monthly income, expenditures, age, personal assets and existing liabilities and debts. This procedure, through which the lender reviews your credibility, is called credit appraisal.


Loan disbursement – The procedure of releasing the home loan proceeds by the financial institution to you is called loan disbursement. A lender basically disburses the home loan just after getting all the valid required documents from you and checking your credibility. Loan disbursement can be of 3 kinds – advance disbursement, full disbursement, and partial disbursement.


Also Check and Apply: Piramal Housing Finance


Pre-approved property – Before the lender approves your request for a home loan, financial institutions conduct a full-fledged sanity review on your property. Few builders may get this specific sanity check conducted by lenders in advance to get the tag of a pre-approved property. By choosing a pre-approved property, you may get your home loan processed in a hassle-free and quick manner.


Floating and fixed interest rate – The interest rate is one of the major home loan parameters that you must factor in before you apply for a home loan with the lender. A fixed interest rate means that the rate levied on your home loan will stay the same throughout its repayment tenure. However, in the case of floating-rate home loans, the interest rate imposed by lenders often changes periodically.


Postdated cheques – Many financial institutions ask for post-dated EMI cheques before disbursing the home loan amount to you. As this name suggests, post-dated cheques are those with future dates mentioned on them. Such cheques may be encashed just on or post the date stated on the cheque, but not before this.


Resale property – It is an extremely common term when it comes to a home loan, which is generally used when you are purchasing a property from any other property owner and not from a builder. Such kind of properties is called resale properties. Such transactions include several pieces of paperwork as the seller requires to transfer the ownership of the property to you.


Foreclosure or loan pre-closure – Pre-closure or foreclosure loan is the condition wherein you want to close your home loan account by repaying the whole loan proceeds before the repayment tenure ends. This is generally done when you have adequate funds in your hand to repay the loan proceeds. Lenders might charge a very nominal charge called a foreclosure fee.


Collateral – Collateral is the asset that you pledge in the form of security for getting the home loan. In the case you as a borrower fail to make the loan repayment, the lender may use this asset for the loan proceeds recovery. In the case of home loans, the property based on which the home loan is approved becomes the security or collateral. This endows the lender with the right to sell the mortgaged property if you default on the home loan EMIs.


Quick tips you must adopt before opting for a home loan.


Purchasing a home is referred to as one of the best financial decisions that many make in life. If you are one of those, ensure to follow certain tips for a better decision. Many are unaware of all formalities that you need to meet to get home loan approval. If you are opting for your first home loan, you must be aware of factors like credit score, rate of interest and various other fees linked with home loan and documentation.


Availing of a home is once a lifetime decision, and hence you must make it perfectly. You must be aware of the important home loan components before opting for them. Here are the common things you must follow before you avail of a home loan.


Credit score


A score is a major essential and crucial factor that banks factor in before offering any approval on loan. So, as an applicant for a home loan, you must ensure to maintain a strong score of at least 750. Keeping a good score may make you eligible for a home loan at a lower interest rate.


Rate of interest

Every individual must check as well as factor in the home loan rate of different banks as well as financial institutions. If you want to get a home loan, you must be aware of distinct lenders to get the lowest interest rate. Before this, you must be aware of distinct kinds of the rate of interest available in the market. There are basically 2 kinds of the rate of interest – fixed and floating. As per fixed home loan rates, EMIs do not differ over the repayment tenure of home loans. However, as per the floating interest rate, the rate is computed depending upon the repo rate and changes over time, which may prove to be advantageous if rates decline in the future.


Ending note

Now that you are aware of the different home loan terms and important tips, you are now better equipped to find the perfect lender for a home loan for yourself. However, once you zero on the lender, ensure to take the help of an online home loan calculator to compute the loan EMI as per your preference so that you may be comfortable repaying over the loan repayment tenure.


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