Terminologies plays an integral part while opting for home loans by the customer. There are various facts that the customer should know before applying for the loans. Not knowing the terminology can lead to confusion for the client and also can lead to misunderstanding by the customer. Also, there are some misleading clauses that the customer may not be aware of, and thus the customer will not come to know about getting cheated at a particular stage. There is a lack of unawareness amongst the home loan borrowers in case of financing. Even it may happen that some borrowers may not be well educated or else may not belong to finance background, which can be the reason for not knowing the terminology. The borrower should also know some other essential things like the loan’s interest rates are calculated on a cumulative basis and not on the simple interest rates. The loans can be provided for a moratorium of up to 30 years, and in any case of default or delay in payments, the borrowers may be charged a heavy penalty by the lenders. Thus it is necessary to follow guidelines as stated by the bank to avoid penalty.
The home loan terminology can help easy & clear understanding of the home loan. The loan borrowers can avail of the loans from any of the lenders of their choice, and thus all the lenders have the same terminology as applicable for the home loans. The home loan borrower has to submit the property documents to the lender while availing loans and get it returned after repayment of loans and the interest and principal amount. A better & clear understanding of the home loans can help the borrower understand the terms & conditions in a better way. The home loan interests vary according to the lender to lender, and thus the loan applicant should do a thorough survey of the loan’s interest rates before opting for the loans. The terms mentioned in the clause agreement should be analyzed carefully, and accordingly, the decision of the loan should be taken by the applicant. If the words are found to be misleading, the conditions should be changed if it’s found to be totally against the lender’s interest.
Following are the terms & conditions of the lenders:
- Joint home loan:
This loan category is being made available to the applicants who wish to opt for loans jointly as co-owner. The relation can be father-son, husband-wife, and brother- brother. etc. Usually, the link between husband & wife is common. The couples can avail the loans jointly if both have a source of income and share the burden of the loans.
- Home loan balance transfer:
This means that the borrower can transfer the loans to another lender at lower interest rates if higher interest rates are charged by banks. The transfer of loans from one lender to another is known as balance transfer.
- Top up loans:
In case of a higher requirement of the loan amount, the top-up loan can be utilized. These are also known as collateral loans.
EMI stands for equated monthly installments. These are the installments required to be paid by the borrower to the lender every month after availing of the loans. Thus, the EMI is a process of recovery of loans disbursed to the borrower by the lender known as EMI.
The tenure of the loan is the duration for which the loans are extended to the borrower by the lender. For example, the maximum term of the loan can be 30 years, while the minimum tenure can be five years. Thus the higher the assignment lowers is the monthly installment being charged, while the lower the term higher is the monthly installment applies
- Fixed interest rates:
The fixed interest rates are the interest rates set during the loan application. They are kept fixed until the end of the tenure, irrespective of the fluctuation in interest rates in markets. The interest rates, once fixed, the borrower can continue to repay the same until the end of the tenure.
- Floating interest rates:
The floating interest rates are the ones that are charged to the borrower according to the current market conditions going on in the market till the end of the home loan tenure. So the floating interest rates, if it gets reduced, the borrower can benefit a lot from the falling interest rates.
- Base rate:
The base rate is the minimum rate being charged by the lender. In the case of floating interest rates, the lender may mention the minimum amount that the lender may charge if falling interest rates beyond which the rates may not fall for the borrower.
The margin is the down-payment value being paid by the flat buyer. The banks usually approve 80% of the property value as a home loan, and the remaining is the marginal value. The marginal value can increase if the property buyer opts for a lower loan and higher down-payment.
- Credit appraisal:
Before the loan is sanctioned, the lender considers the request on the basis of various parameters. These are income, age, employment, and credit score. In addition, the CIBIL records are taken into consideration by the bank. For example, suppose the loan applicant is repaying the existing credit card bills on time, or else the previous loans are being paid correctly. In that case, the applicant is considered amongst the honest person and thus can be considered for the approval of home loans.
The disbursement of the loans is the actual credit transfers done by the bank to help pay the amount by the flat buyer to the real estate developer.
The pre-EMI payment begins after the loan is disbursed. Until then, the installment is charged on the partially paid amount. This is known as pre-EMI.
- Offer letter:
The offer letter is the sanction letter being given by the lender to confirm that the lender is approving the loan, and the borrower can go ahead with the purchase of the property.
- Pre-approved loans:
The pre-approved loans are the clearance being gained by the real estate developer to get the maximum number of buyers. In this process, the land titles and the sanctioning permission are previously done by the real estate developers to get speedy loan approval.
- Loan to value ratio:
The LTV ratio is the ratio that can be approved as part of the home loan against the total property value.
The pre-closure is the early closure of loans by repayment of higher value than the regular monthly installment to the lender. This can help the borrower become early debt-free and also can save on interest repayment value.
- Resale property:
The resale property is the property obtained from the owner, which is already constructed. Therefore, the resale property helps gain immediate possession rather than the new construction property.
- Post-dated cheques:
These are the payment done by the flat buyer for future dates to clear the amount of the property or loans.
- Home construction loan:
This is the loan taken to construct the house on the already existing plot where the buyer needs to build a house.
- Home extension loan:
In case if the flat owner gets approved higher FSI in a later stage, then, in that case, the flat buyer can expand their house by certain square feet; thus, obtaining a loan for this purpose is known as home extension loans.
Thus knowing all the terminology can help loan applicants avail of loans without any confusion. Thus knowing the terminologies are of paramount importance.