Top 12 Terms You Must Know Before Taking Home Loan!

Taking a home loan is a mammoth task, especially with all the paper work and cumbersome legal formalities involved. A lot of first time home loan customers are unfamiliar with several loan jargons and find themselves at a loss while dealing with bank officials and builders. But taking a home loan is one of the biggest financial liabilities you will incur. Thus, before you take the leap, you must familiarize yourself with related terms and common practices.
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 is 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. The validity of a sanction letter is generally around 6 months. If the loan is not availed during this period, the sanction lapses and the entire process needs to be reworked if applicant approaches bank again.
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. These cheques cannot be processed ahead of date mentioned on them.
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. A loan is always disbursed by cheque, which can be credited into a loan account with the bank; it is never given by cash.
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. According to the thumb rule, EMI should not exceed more than 30% of your total income, considering other liabilities. To arrive at EMI, your bank will consider several parameters;
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. These interest payments are known as pre-EMI. So the longer your builder takes to complete construction, the more interest you pay to the bank, adding on to the cost of your property.
Pre-EMIs too have tax benefits. After the construction is completed, you can claim tax deduction in five equal annual installments. However, any principal repayments made during this period are not liable for tax deductions. But this should not stop you from making repayments as it brings down your loan burden considerably.
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. While buying resale property, make sure you have a record of all previous owners of property and the reseller has undisputed ownership. This will ensure smooth processing of loan application.
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. So any buyer, who applies for a home loan for this property, need not get the legal verification done again.
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. Several parameters are considered to confirm the credit worthiness of a loan applicant;
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?
home loan security
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. Therefore, before finalizing a loan, you must analyze the terms and conditions of various banks, and choose the one with favorable terms.
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. Several banks offer schemes wherein they waive off processing fee, to attract more customers. So while choosing a bank, it is advisable to opt for one which offers the lowest or no processing and administrative fees.

Anil Surma working with Finance company as adviser owing good knowledge of different types of Services such as Super Savings Account and Home loan so on.

Home Loan Becomes Cheapest As SBI, UNION And Other Banks Slash Rates

< object type="application/x-shockwave-flash" style="size:425 px; elevation:355 px;" information ="//" >< param name="movie" worth ="//"/ > State Bank of India has lowered its benchmark interest rate by 90 basis points from January 1, has actually increased its spread on home mortgage to 50 basis points and above, as compared to 25 bps earlier. This means that the most affordable mortgage rate a debtor could avail of with the largest lender in the nation is 8.5 each cent.

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