With several lenders offering easy home loans on almost all kinds of houses, home buyers are happier than ever. But, the process of home loans can sometimes be challenging to understand. If you are a prospective or recent borrower frustrated with the fine print and petrified by words you don’t understand, read on to know their meanings.
Also called down payment, margin is one of the most critical terms home loan borrowers must know. Whenever you apply for a home loan, your lender only pays about 80-90% of the total cost of the house. You must cover the remaining sum out of your pocket. This remaining amount that is paid to the lender by the borrower is called margin or down payment.
The bigger the down payment, the smaller the principal amount lent, and hence the lower the EMI. You can use a home loan EMI calculator to determine how much EMI you will have to pay after clearing your down payment.
Credit appraisal is a step that lenders conduct after you apply for a housing loan. In this process, lenders analyse the borrower’s primary financial record, current debt obligations, other financial commitments, age, salary or income, qualifications, job title, and work experience etc.
Doing this allows banks to decide if the borrower’s home loan eligibility is solid. Whether you apply for a home loan online or offline, lenders will take some time to conduct a credit appraisal.
A home loan is always sanctioned for a limited period, which is technically known as the repayment tenure. The repayment tenure that a lender offers you depends on several factors like amount borrowed, home loan interest rates charged, the EMI paid etc.
Repayment tenures are usually flexible and can be extended or reduced based on the borrower’s preferences. To determine how long of a repayment tenure you wish for, use an online home loan calculator.
Loan disbursement is simply the process through which lenders release the loan amount either partially or fully. Ready-to-move-in properties are usually eligible for full home loan disbursement, while those under construction are only eligible for partial loan disbursement in stages. Most lenders nowadays do not take a lot of time between loan processing and disbursement.
Collateral or Security
Used interchangeably, these terms imply the same thing – a property against which the loan is sanctioned. In case of home loans, the house purchased acts as collateral or security. Hence, lenders do not usually demand very expensive collaterals. If you fail to repay the home loan interest and principal amount on time, the lender might seize your property.
Whether you are a new borrower or have taken a home loan in the past, you must be familiar with these terminologies. If you come across other terms you don’t understand, do not hesitate to ask your lender. Remember, a complete understanding of the home loan process is necessary for anyone looking to avail of a loan for buying a house.