10 home loan terms you must know

Last updated on: April 11, 2005 20:58 IST Email this Save to My Page Ask Users Write a Comment

aking a home loan? Here are 10 terms that you must get familiar with. 1) Margin When you take a loan, the home loan company will not put up the entire amount. It will only put up around 80% to 90% of the cost of your home. You will have to put in the balance 20% or 10%. Even if they go up to 95%, you will still have to put in the balance 5%. This amount is called the downpayment or the margin. 2) Resale This is the term used when you are buying a home from someone who already owns it and is selling it. Hence it is referred to as a resale. It indicates you are not buying a brand new home straight from the builder or buying one currently under construction. 3) Credit appraisal The home loan company will take a look at a number of parameters before a loan is sanctioned. Your savings, income, age, qualifications, nature of work and work experience are some of them. They will also look into how many loans you are currently servicing. Taking all these issues into account, they will determine whether or not you are eligible for a loan and what the sanctioned amount should be. This process is known as a credit appraisal.

The cheque is disbursed (it is never in cash) only when you have submitted all the documents required and have made the downpayment. If everything is in order. the home loan company hands over the entire payment to the seller. The rate of interest. The home finance company will examine all the legal documentation and approvals. it speaks well of the builder. Generally. Let's say you have a five-year loan with an EMI of Rs 4. then the cheque is made out in the seller's name. The EMI remains constant throughout the repayment period. However. the home loan player will view the builder's ability and track record to complete the construction in time. Partial disbursement A partial disbursement is made in stages (not at one go as in the case of full disbursement). An EMI is an unequal combination of your loan amount (principal) and the rate of interest.400.4) Pre-approved property Many builders get their properties pre-approved by home finance companies. the home loan financier will look at • • • • The principal (the actual loan amount). How the rate of interest is computed (monthly reducing. 6) Disbursement Full disbursement A full disbursement is when the entire cost is paid at one go. The repayment period (the number of years you will take to repay the loan). If this is a resale. the builder will get a stamp of approval. 5) Equated Monthly Installments An EMI is the amount of money you will have to pay every month in order to repay your loan. All it means is that the property falls within the legal purview and the builder has a good track record. To arrive at the EMI. If you are purchasing your home from a builder. . You will have to pay this amount for the next 60 months to the home loan company. this does not mean the home finance company is going to take any action or waive any charges if the construction is delayed. then it is in the builder's name. Also. quarterly reducing or annual reducing basis). if a builder gets pre-approved by a number of players.

Payment will be made in stages. ii. details of the scheme Any other conditions of the loan . For instance. you will be charged 8% simple interest on payments made till date. 7) Advance Disbursement Facility If the house is still under construction. the home loan company will not pay the entire amount to the builder. This is known as partial disbursement. So the longer your builder takes to complete construction. the home loan company will not release all the payment at one go. After the completion of the last floor.When purchasing an apartment from a builder and it is under construction. payment is released. If the buyer requests the home loan company to do so. Hence payment is construction linked and disbursed accordingly. 20% of the payment will be made. Till then you pay the home loan company a rate of interest on the amount partially disbursed. If your home loan is going to cost you 8%. then a partial disbursement is made. This will go on till the final payment (disbursement) is made and your EMIs start. the home loan company may be willing to make the entire payment even if the construction is not complete. If the home loan company is fairly convinced the builder will complete the construction on time. However. the more you end up paying. in some cases. The money will be released in stages. As construction is completed. You start paying your EMIs only after the final disbursement. 8) Pre-EMI When you buy a home that is under construction. This is known as an advance disbursement and will occur only in both these instances: i. 9) Offer Letter Once the loan is sanctioned. • • • • • • • Loan amount Rate of interest Fixed/ flexible rate of interest Tenure of the loan EMI amount If offered under a special scheme. after the completion of the first floor. This interest is called pre-EMI. 40% and so on and so forth. you will get an offer letter stating a number of details.

Generally. 10) PDCs Post-dated cheques are dated ahead of time and cannot be processed till the date indicated.This letter does not mean the loan is yours. signed by you and will state the exact EMI to be paid . It will then look into the various property and legal documents as well as value the property you are buying. These cheques will be addressed to the home loan company. The loan will only be disbursed once these formalities are complete. It only means the home loan company has agreed to consider you as one of its customers. the home loan company will ask for a year's supply of cheques or maybe even two or three years. At the end. you will have to replenish the supply for the following years.

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