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Home Loan Terms You Need to Know

The bank would sanction a home loan, accounting for almost 70-80% of the property value.

Updated:March 6, 2019, 1:26 PM IST
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Home Loan Terms You Need to Know
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To start with the old maxim- Home is where the heart is!

The dream to own a house, one that you can call your own, is irrepressible. Home loans have been instrumental in transforming that dream into a reality, for many. However, before you apply for and get a home loan, it is important that you acquaint yourself with a glossary of a few typical terms associated with such a loan.

Here is a quick guide:

EMI

Inarguably the most talked about term within the loan scape, EMI (an acronym for Equated Monthly Installments) refers to the monthly outlay you have to make towards repayment of your loan. EMI is pre-calculated on the basis of factors such as loan amount, tenure and rate of interest, and the borrower is intimated about the same at the time of loan disbursal.

Down Payment

Usually, the bank would sanction a home loan, accounting for almost 70-80% of the property value. However, the onus, in all likelihood, will be on the borrower to arrange for the remainder of the funds. A down payment or margin is essentially the sum of money that the borrower would have to arrange by his/her own means.

Credit Appraisal

Prior to sanctioning the loan amount, banks usually assess your ability to repay the debt on time, by taking into account factors such as your income, age, the order of assets and liabilities etc. Credit appraisal simply refers to the process that banks abide by in order to gauge your repayment capacity and make sure defaulting is not a possibility.

Post-dated cheques

Post-dated cheques refer to the series of cheques that the borrower draws, for a future date of 1 or 2 years, from the time of taking out the loan. These would serve to deduct EMI payments (over Electronic Clearing Service mode) on the dates as mentioned in the cheques.

Pre-Approved property

Prior to approval, banks often verify the viability of a project or property that warrants the borrower to take out the loan in the first place. Some builders/promoters get this proactively done in order to use it as a pitch to promote the property.

However, one should check all the legal documents carefully before purchasing a property, irrespective of whether it is pre-approved or not.

Pre-EMI

In the event of a partial disbursement of the home loan, the borrower would have to pay interest, but only on the amount that has been sanctioned by the bank. This sum is referred to as Pre-EMI and is scheduled for monthly payment, till the date of the final disbursement of the loan. Post that, normal EMI payments would commence.

Sanction letter

A sanction letter, containing details such as the loan amount, interest rate, repayment tenor and EMIs, serve as a confirmation of the loan being granted to the borrower.

However, should there be issues related to property (such as the viability of the land, disputed status of property) or otherwise, the bank, in such a scenario, retains the right to cancel the sanctioning of the loan. This is, of course, regardless of whether the sanction letter has been issued or not.

Collateral

Collateral refers to an asset that a bank would require the borrower to pledge, in order to guard against any potential default. Normally, the house (or property), the purchase of which warrants the home loan, is deemed the collateral.

Should the borrower fail to repay the debt in full, the bank can claim ownership of the property and eventually sell it off to recover the dues.

To know more, click here.

This content has been created in association with YONO SBI.
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