Buying a home is one of the major financial decisions in one’s life. Such a decision has to be taken after a thorough research and proper planning. Here are some must to know terms one should know before applying for a home loan
Down payment: When buying a home, bank sanctions only 80% of the property value and the rest 20% should be paid by the buyer from his or her pocket, which is called down payment.
Types of rate of interest: Fixed rate or floating rate are the two types of interest rates you need to know. Fixed rate is where your interest remains fixed for the entire loan period, whereas the floating rate varies according to the market conditions. So one pays an unchanged rate of interest with the fixed rate. Floating rate allows you to pay less at times where markets fluctuate.
Sanction letter: Sanction letter is the confirmation for the eligibility of the home loan, but does not guarantee disbursement. The letter comprises loan amount, interest rate, loan period, EMI (equated monthly income) amount, etc.
Disbursement modes: After the verification of the legal documents, the loan amount would be released in three ways or modes: full, partial and advance. When the total loan amount is released, it is called full disbursement. In case of the partial disbursement, the loan amount is released in parts according to the progress in construction.
EMI: Repayment of the loan to the bank on monthly basis is called EMI, which depends on the interest rate, principal, interest rate, computing interest, etc. EMIs begin after the loan disbursal. The EMI is inversely proportion to the loan tenure, i.e. EMI decreases with increase in loan tenure.
Post-dated cheques (PDC): The borrower has to issue PDCs for a stipulated period for EMI payments at the time of final disbursement. These are collected as one may need to pay extra EMI with the extension of the project.
Credit appraisal: Banks check the borrower’s credibility to replay the home loan, by checking the age qualification, experience, existing loans, etc. Thus, decides the borrower’s ability to repay the borrowed amount. In case of non-repayments, banks can opt to sell the borrowers property to recover the amount.
If you are applying for a home loan for the first time chances are that you may encounter a few problems. Get a thorough knowledge about the terms, policies, procedures, etc. before applying for a home loan to take well-informed decisions. For more information and expert advice on personal finance, approach ArthaYantra – World’s full-service Robo-advisory. Our mission is to make high quality financial advice affordable to everyone, irrespective of their wealth status.