Home Loan Terminologies You Must be Aware Of

A List of Home Loan Terminologies

Down Payment

Lenders are usually permitted to disburse up to 90% of the property’s value as a Home Loan, leaving the remaining amount to be funded by the home buyer themselves. The money you put down by yourself is called the down payment amount. The RBI allows lenders to sanction 70% to 90% of the property value as a mandate, which means that borrowers should have a plan in place for financing their down payment.

Floating Interest Rate

A floating interest rate is sensitive to market conditions. If you choose a floating interest rate for your Home Loan, then your interest rate can both increase and decrease through your repayment tenor, in accordance with the market conditions.

Fixed Interest Rate

Fixed interest rates are unaffected by market conditions. As the name suggests, it is fixed for the entire tenor without any deviations at any point of time.

Tenor

Tenor is the repayment timeline of a Home Loan specified by the lender. You must pay off your loan amount, both the interest and the principal amount, within the allocated period. Lenders commonly offer a tenor of up to 30 years.

Resale

Resale is a term that indicates that you are not buying a home directly from the builder but from a prior owner who is willing to sell it.

Joint Ownership

Joint ownership indicates that the property is jointly owned by two or more individuals. In the case of joint ownership, the financial responsibility of loan repayment can befall all homeowners.

Sanction Letter

The Home Loan sanction letter is a formal letter that confirms the loan approval, details and sanction by the lender. The sanction letter is the legal proof of your Home Loan eligibility and approval.

Collateral 

Home Loans are big-ticket loans for which lenders request security, against which they can sanction the loan. Your collateral is an asset you need to provide the lender against the loan, and in the case of a Home Loan, it is the property you want to buy through the loan sanction.

Disbursement 

The processing of crediting the loan amount to your bank account is called disbursal. Lenders can initiate the disbursement process once your profile and documents have been verified to their satisfaction. Home Loans, upon prior agreement, can be disbursed at one go, or can be released to you in partial disbursements.

LTV or Loan-to-Value Ratio

The loan-to-value ratio tells you what percentage of the property’s value can an applicant get as a loan amount – in the case of a Home Loan. The Reserve Bank of India allows lenders to sanction anywhere starting from 70% of the property’s value, going up to 90%, as the Home Loan amount.

Equated Monthly Instalments or EMIs

EMI or an Equated Monthly Instalment is the monthly payment that you make to your lender as a part of your repayment schedule. The EMIs account for both the Home Loan principal amount and the interest accumulated, which the borrower is liable to pay back in full.

Foreclosure

When you pay off your loan amount in full before the end of your tenor, then it is called a foreclosure. To foreclose your Home Loan, you have to repay the entire outstanding amount in full – in one go. The RBI mandates that no additional fee be placed on individuals with floating interest rate Home Loans, should they choose to foreclose their loans accounts.

Read More: Floating vs Fixed Interest Rate Home Loan

Final Word 

If you are planning to avail of a Home Loan, we hope this glossary of terms will help your research and negotiate a satisfying deal with your lender.