This article will help you decrypt the mortgage industry’s vocabulary and make your loan application a lot less stressful.
Common Words and Acronyms
Here is a complete glossary of common Home Loan terms and acronyms, for your reference:
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 the same through the tenor 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 at the time of purchasing a property.
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, and other loans 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.
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. Certain financiers provide 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 tenor is known as 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 lenders before that period is up, 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 of the property 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 mortgage terms and acronyms, you may not be able to get the best deal. So, first understand the important terms, do some additional research, and then apply for the Home Loan that best fits your needs.
While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent inaccuracies or typographical errors or delays in updating the information. The material contained in this site, and on associated web pages, is for reference and general information purpose and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Subscribers and users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. In case any inconsistencies observed, please click on reach us.
*Terms and conditions apply