12 Terms you Must Know Before Taking Home Loans

Everyone dreams of buying a property that can fulfil all their needs and requirements. Of course, the decision of buying a home mostly depends on the Home Loan cost that one can avail. To be honest, “taking a loan” sounds easier than done. Today, there are a huge number of banks and financial institutions ever eager to lend their hands in the form of loans. The most tedious part is the process to get the loan sanctioned. This is why it is important to be familiar with the home loan clauses like you are with other financial products. Now, if you are planning to purchase the new flats in Ballygunge make sure you are aware of the home loan terms below.

Sanction Letter

It is a formal confirmation directly from the bank. The formal/sanction letter considers the buyer/applicant as one of its listed loan customers. However, it doesn’t confirm the sanction of your home loan. The validity of this letter is due for 6 months only.

A pre-approval of home loan

In order to get a pre-approval of your home loan without finalizing the property, you need to write an application similar to that of a standard housing loan application. Some companies look for a declaration where the applicant should mention that he hasn’t acknowledged the property and is applying directly under the pre-approval.

An EMI

Equated Monthly Instalment or EMI is the amount that is payable to the financial institution every month until the complete loan is paid back. EMI is all about principal plus interest. It should be noted that the interest is being charged entirely on the outstanding principal at every month end.

Pre- EMI

In case of an under construction property where you get the possession later, the payment procedure changes accordingly. There are banks to defer the EMI till you receive the possession of your new flats in Ballygunge within the particular time. Now, this payment of interest at such a stage is referred to be as the ‘Pre-EMI’ interest.

Fixed and Floating Rate of Interest

Based on the bank’s interest rate, there are two forms of home loans – fixed and floating. Floating loan varies as per the market conditions, whereas, the interest rate of a fixed loan doesn’t change even with the market fluctuations. So, check carefully before you take a loan for the new flats in Ballygunge.

Reset Clause

It is a loan agreement that defines the reset time of the interest rate and other related terms & conditions. This particular reset clause is set in the fixed rate loans.

Base Rate

Indian banks link all their lending to the base rate. It is considered to be the benchmark rate with all the lending pegged to this base rate. A bank’s base rate is determined by an interest margin and the cost of funds.

Prime Lending Rate

Finance companies like HDFC, LICHFL & PNBHFL lend housing loans on Prime Lending Rate (PLR). Each of the housing finance companies comes with a different name for its PLR, though it means almost same. Generally, the PLR is high in number and companies like LICHFL, PNBHFL & HDFC offer a discount on this. This, in turn, becomes an effective rate of interest that can be charged to the applicant.

Construction Linked Plan

When it comes to the construction linked payment plan, you will find that the buyer pays the money in instalments as the construction is in progress.

Approved Project Funding

In order to facilitate the individual property buyers, the banks do not want the complete set of their property papers from them. Instead, the builders are asked to deliver the documents directly to the bank. Soon after, the bank approves the buyer’s project funding.

Prorated Home Loan

Young individuals find it difficult to pay a lump sum amount for the new flats in Ballygunge at their career’s early stage. In that case, they can ask for the contribution from the bank during the construction stage.

Security Required for Home loans

The property purchased is itself considered as the mortgage to the financial/lending institution until the loan is reimbursed. Other than this additional security deposits like FD receipts, life insurance policies, and saving certificates are also asked.

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