Understanding Common Home Loan Terms to Make Better Decisions
If you are a first time home buyer, then you are probably concerned with the jargon used by mortgage professionals. Especially in situations where they bombard you with big and complicated words, and you’re only option is to nod your head in agreement without really understanding. Since a Home Loan has enormous financial ramifications on your future, it is critical to make a sincere effort to familiarise yourself with common mortgage terms. This article will help you decrypt the mortgage industry’s vocabulary and make your life a lot less stressful.
Common Words and Acronyms
Here is a Complete Home Loan Glossary:
Floating Rate Interest Home Loan
This scheme offers an interest rate that changes periodically. There is usually an upper limit to how much it can increase.
Fixed Rate Home Loan
Unlike Home Loans with floating rate of interest, this is an interest rate that stays the same through the tenure of your Home Loan (which could stretch anywhere from 15 to 50 years).
This covers costs such as origination fees, attorney’s fees, documentation fees, etc. This is usually paid by the buyer when buying real estate. Before taking a Home Loan, be sure to take a look at Bajaj Finserv list of minimal fees and charges for Home Loan
This is the property or asset that the borrower gives to the lender as security. This basically means that if you can’t repay the loan, the lender will have ownership over the assets you’ve used as collateral.
When you apply for a Home Loan, the loan company does a background check on you – your credit score, monthly income, savings, other loans, etc. are all analysed. This helps them determine your eligibility for the loan, how much of a loan you qualify for. This entire process is called a credit appraisal. When applying for a loan from Bajaj Finserv, remember to submit all required documents for Home Loan that would be needed to check your eligibility criteria.
This is the term used to signify the release of the loan from the financial institution to the borrower.
According to the Reserve Bank of India, when you buy a property, you can take a loan of up to 80% of the property’s value. The remaining 20% has to be directly paid by you. This amount is called the down payment.
Equated Monthly Instalments
EMI is an acronym we often hear. EMI is defined as the amount you repay to your lender every month. This combines both the principal loan amount, as well as the interest owed. Bajaj Finserv gives you three EMI Free Months to give you a financial cushion, in case you need it.
Completely paying off your loan before the end of your loan’s tenure, is known as a foreclosure.
This happens when two individuals, usually spouses, buy a property together.
Loan to Value Ratio (LVR)
This refers to the percentage of loan you are getting in relation to your property’s value.
For example, if the value of your house is INR 1 crore and the loan is for INR 70 lakhs, then the LVR is 70%.
Many institutions have a clause that states that a borrower must stay with them for a fixed number of years. If you decide to change banks in between your repayment duration, then you may have to pay a penalty fee.
This is the lifespan of a Home Loan, within which the debt must be repaid.
Post-Dated Cheques (PDC)
These are cheques with future dates. These cannot be processed before the mentioned dates. Many lenders ask the borrowers for a years’ supply of PDCs that have the EMI amount and your signature on them.
This means that you are buying a property that has been previously owned by someone else. Use of the word implies that you are not the first owner and that you did not buy it from a builder. In such cases, be sure to ask the seller to hand over all financial records of the property.
Most people are not aware of Home Loan terms in India. If you apply for a loan without any knowledge about mortgages, you may not be able to get the best deal. For example, did you know that Bajaj Finserv offers online Home Loans at some of the lowest interest rates in India? So, first understand the important terms, do some additional research, and then take on the world of real estate!