Sunday, December 18, 2016
Popular terms you must know when applying for a home loan
Mihir Mishra, 56, found the home loan process a bit confusing. He was not tech-savvy, so he did not want to applyfor it online. He went to the lender’s office, but all he heard were terms such as 'advance disbursement', 'pre-EMI', and so on. Only after doing some research did he figure out what these terms meant. Along with clearing up many of his doubts, it also made the home loan process simpler for him to understand.
Perhaps you too have been struggling to understand certain things that lenders say. To help you out, here is a listof some commonly used home loan terms and their meanings.
A home loan provider paysabout 85% of the total property price. You have to pay the remaining amount. This amount that comes from your pocket is known as the margin amount or the down payment amount.
You have to submit a few post-dated cheques to the lender after the loan approval. These cheques act as a kind of assurance that the lender will get back the loaned amount. Theywill be cashed on the dates mentioned.
When you submit all the documents and pay the margin, the bank hands you the loan, which is known as disbursement. You can open a loan account in the bank and deposit the cheque. It is sometimes common for lenders to charge a disbursement fee at this stage.
Advance disbursement facility
At times, the property builder could request the borrower to disburse the entire loan before the project is complete. This is not a common practice, however. The lender entertains such a request only if the builder is highly reputed.The lender needs to be convinced that the project will be completedon time and in the right way.
This is perhaps the most common home loan term that you have heard of. EMI or equated monthly instalment is the amount you pay to the bank every month to repay the loan. It comprises of a part of the principal along with the interest component.
Let’s sayyour property is still under construction. The lender may ask you to pay only the interest component of the EMI until the entire house ready. This payment is called a pre-EMI. You can avail tax benefits on pre-EMIs as well.
Many builders get a reputed home loan provider to verify and evaluatethe property beforehand. If you have applied for a loan from these lenders, you need not carry out further verification checks to get the loan.
To get a home loan, the borrower needs to have a good credit score. The credit score is a record of the borrower's past loan repayment patterns. Those who repayall their loans properlygenerally have a good credit score, as opposed to someone who defaults on their loan. So, the lender runs a credit appraisal of the applicant before approving the home loan.
You can choose to repay your home loan earlier than the stipulated time in one or two large payments. This is termed as pre-payment of a home loan.
Every home loan provider charges a processing fee during the loan application process. The fee is usually about 2% of the loan amount. You have to pay this fee even if the lender rejects your application.
You now know and understand many of the common home loan terms.This should give you confidence when tackling the home loan process. Good luck!