If you wish to apply for a home loan, you must understand certain home loan-related terms to make an informed borrowing decision. In this article, we will explain the top 5 home loan terms.
Saving money to buy a house might not be possible for many people. However, they can avail of a home loan to finance their home purchase. Availing a home loan is an important financial decision, and every borrower must make an informed choice.
Often, first-time home loan applicants tend to feel overwhelmed with the various home loan terms, which can be hard to understand. However, you must understand them before you apply for a home loan. Some of the important home loan terms you must know are:
- Down Payment
One of the first terms that you will know about home loans is down payment. Generally, lenders don’t provide a loan to cover the entire cost of the house. You will also have to pay a certain amount upfront to get your loan approved. The amount that you pay is called down payment. Generally, the lenders require the home loan applicants to pay at least 20% of the property’s cost from their pocket.
An EMI is the amount of money that you must repay every month to the lender. The EMI amount is calculated based on the interest rate, the amount you borrow, and the loan tenure. When you apply for a home loan, it is better to use an EMI calculator to determine the exact EMI payable for the amount you wish to borrow. This will help you plan your finances well and make provisions for EMI payments.
- Pre-Approved Properties
The home loan is approved after the bank does a physical inspection of the property and verifies the property documents. Many builders get their property pre-approved by the bank to sell the homes quickly. If you are looking to buy a new home, you can consider looking for pre-approved properties to get your home loan approved faster.
There are a few loans where the lenders disburse the loan amount partially. Most of the time, this is done when borrowers avail a home loan to construct their own house. In such a situation, a home loan borrower must pay the interest on the amount disbursed by the bank until the entire loan is disbursed. Pre-EMI is the period of repaying the partially disbursed amount.
- Resale Property
Resale property is when a person purchases a property from someone who owns it.
- Fixed Interest Rate
The fixed interest rate stays the same during the loan tenure.
- Floating Interest Rate
The floating interest rate fluctuates during the loan tenure.
- Occupancy Certificate
The local planning authority issues the occupancy certificate. It verifies that a building is fit to be occupied.
The repayment of the loan before the tenure is known as prepayment. However, a borrower needs to keep in mind that the lenders might charge a fee for prepayment.