Taking a home loan is a huge task, especially with all the paper work and awkward legal formalities involved. At first, customers are unfamiliar with many loan jargon and found at a very loss while dealing with the bank officials and the builders,
Taking a home loan is one of the best financial liabilities that you will bring upon yourself. Before you take the jump, you must be familiarizing yourself with related stipulations and practices.
What is Margin?
In 2010, RBI sets an upper limit on home loans which limits the sum of loan one can take against property to 80% of the property value. This income that while the bank pays 80% of the total cost of your property, the remaining 20% desires to be salaried by you. This residual amount is referred to as margin or down payment.
For example, if you have purchased a property worth 75 lakhs, then the bank can finance up to 80% of the total amount, which is 60 lakhs. So, the remaining 15 lakhs have to be remunerated by you. However, in practice a lot of other factors determine an applicant’s loan eligibility.
The advanced the margin amount, smaller will be your loan amount, reducing the total cost of your property (since interest paid on home loan adds on to the total cost of property).
What are an Offer/ Sanction Letter?
An offer letter is a formal confirmation from the bank stating that it has decided to consider you as one of its loan clientele. It does not verify sanction of home loan. The loan will be disbursed after a confirmation of all legal credentials and eligibility of candidates. The strength of a sanction letter is usually around 6 months. If the loan is not availed throughout this period, the sanction lapse and want the whole process wants to be reworked if applicant approaches bank again.
A sanction letter usually states the following;
- Amount of loan sanctioned
- Loan tenure
- Interest rate applicable
- EMI and pre-EMI amounts applicable
- Validity of sanction letter
- Terms and condition of loan agreement
What are Post Dated Cheques?
Taking PDCs for home loan repayments is an ordinary practice banks. These cheques are addressed to the bank, affirm the precise EMI amount and are signed by you. These cheques cannot be processed ahead of date mention of them.
What is Disbursement?
Disbursement means imbursement. It refers to the let go of the loan amount to borrower by the lender. Usually, banks disburse the loan quantity once all the submit documents have been established and the down payments have been paid. A loan is forever disbursed by cheque, which can be accredited into a loan account with the bank; it is by no means given by cash.
Most banks charge a loan disbursement fee. It is added the principal amount when the loan is granted. This fee covers all expenses involved in giving the loan to you.
What are Equated Monthly Installments (EMIs)?
EMI is the repayment you create to your lender each month. It is an unequal combination of your principal repayment and interest payments. According to the thumb rule, EMI should not go beyond more than 30% of your total income, bearing in mind other liability. To arrive at EMI, your bank will consider several parameters;
- Principal amount
- Repayment period
- Rate of interest
EMI payments start one time the loan has been fully disbursed. A break up of your EMIs over the whole loan term can be established in your paying back schedule. It’s important to go over your amortization schedule regularly to keep a track of any changes in the interest rate or loan tenure made by the bank.
What is Resale Property?
When you buy property from an important person who by now owns it before, it is termed as resale. It indicates that you are not dealing with a new home straight from the builder and are not the first owner of that property. While business resale property, make sure you have a record of all previous owners of the property and the reseller has acknowledged ownership. This will make sure smooth processing of loan application.
How is Prepayment of loan beneficial?
When a borrower chooses to make lump amount repayment of loan, it is termed as pre-payment. Pre-payments are helpful as they help get free of debt earlier by reducing the loan tenure.
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