Home loans help people get the finances they require to buy houses. Thanks to these loans, borrowers do not have to take a huge hit on their savings and can easily pay back the loan in monthly instalments over a long tenure.
If you have planned to apply for home loan, this is a good time since lenders are offering the lowest home loan interest rates currently. But there is a lot of planning required before applying for this loan. It is important to understand the exact terms and conditions of a loan plan to both make the entire process efficient as well as avoid any hassles in the future.
So, here are 8 home loan terms that you need to be familiar with:
- Down payment
Before taking a home loan, you should know that the lender is not going to cover 100% of the property value. A home loan generally covers 80% to 90% of the total value of the property. The remaining cost is to be borne from personal savings. The amount you are paying from your pocket is what is known as the down payment.
- Floating and fixed rate of interest
While applying for a home loan, you will have to choose between a floating and fixed home loan interest rate. As their names suggest, a floating rate changes periodically as per market conditions. However, a fixed interest rate will remain constant and is slightly higher than a floating rate.
Collateral is an asset that you place with the lender to get a loan. In case you are unable to repay the loan, the collateral will be used for compensation to recover the unpaid loan amount.
Foreclosure is when the loan is being paid in full before the end of its tenure. Some lenders might include foreclosure charges as a nominal fee.
- Loan EMIs
EMIs stand for Equated Monthly Instalments, which are monthly amounts that are paid to the lender for the repayment of the loan. These instalments are based on the loan amount, interest rate, and tenure.
- Disbursement process
Once the loan application is approved, the process of releasing the loan amount to the borrower is called loan disbursement. There are three types of disbursement, which are partial disbursement, full disbursement, and advance disbursement.
- Credit appraisal
The lender checks an applicant’s repayment capability by studying factors such as their age, monthly income, personal assets, expenses, outstanding debts, and so on. This process is called credit appraisal.
- Pre-approved property
Banks set a verification process for properties that are entitled to a home loan. In order to promote their property for sale, some builders get this check done from the banks. This is known as a pre-approved property.
After being thorough with these terms, you can make an informed decision regarding your home loan plan. Also, always check with the lender regarding documents required for home loan to ensure a smooth process. It is also advisable to use a home loan calculator that will help in understanding the EMIs of the loan.