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13 Home Loan Terms You Must Know

IndianMoney.com Research Team | Posted On Monday, September 03,2018, 06:20 PM

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13 Home Loan Terms You Must Know

 

 

What is Home Loan?

Home is where you knit your dreams and make them come true. Home is where you nurture your family. Having a roof over your head is as important as breathing and eating. Leave alone constructing a house, even finding a property as per your expectations is not easy.

If you do find a suitable property or house, arranging funds to purchase or build it is an entirely different task. This is when Home Loan comes into the picture. Availing a Home Loan looks cumbersome, but it is definitely not so.

You avail a Home Loan from a lender or a bank and pay it back with interest over a period of time through Equated Monthly Installments or EMIs. With a clear understanding of the practical aspects of a Home Loan, it is possible to avail a home loan easily. With this book, you gain decent knowledge on Home Loans. Let’s make the task simpler!

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Meaning of Home Loan:

Home Loan is given by financial institutions like banks, Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) to purchase or construct a house.

With a Home Loan, you can:

  1. Buy a plot of land
  2. Construct a house
  3. Repair or renovate a house

Home Loan is a secured loan. The house that is to be constructed or purchased will work as collateral or security till you repay the Home Loan. If you default on repayments, the property will be auctioned by the lender.

Types of Home Loans:

There are a wide variety of Home Loans tailor-made to serve your needs:

1.  Home Purchase Loans: These loans fund the purchase of new houses.

2.  Home Improvement Loans: These loans fund repairs and renovations on a house that has been purchased.

3.  Home Construction Loans: These loans fund the building of a new house.

4.  Home Extension Loans: These loans fund for extension of an existing house. For example: An additional room or a floor.

5.  Home Conversion Loans: These loans are sanctioned if you already have a Home Loan but now wish to purchase and move to another house, which needs extra funds. Here, the existing loan is transferred to a new Home Loan and there is no need of a down payment.

6.  Land Purchase Loans: These loans fund the purchase of land.

7.  Bridge Loans: Avail these loans if you wish to sell an existing house and purchase another one. These loans help you bridge the money gap, while buying a new house, until you find a buyer for your existing house.

8.  Stamp Duty Loans: This loan is specially designed to meet the stamp duty on your property.

9.  Balance-Transfer Loans: These loans facilitate the transfer of the outstanding balance of an existing Home Loan to another Housing Finance Corporation or bank.

SEE ALSO: Why should you avail a Home Loan?

Home Loan Terminologies:

Following are the common terminologies used in Home Loans:

  1. Principal: It is the amount that you borrow from the bank to buy or construct the house.
  2. Down-payment: It is the amount that you have to pay from your own pocket. It ranges from 10% to 25% of the property value.
  3. Eligible loan amount: It is the amount that you are eligible to borrow. This is calculated based on your income, credit score and other factors. Calculation of the eligible amount differs from bank to bank.
  4. Co-applicant: A person who applies for a Home Loan along with you. It can be your parents, spouse, brother or children.
  5. Fixed rate of interest: This type of interest rate remains fixed for the entire loan tenure.
  6. Floating interest rate: This type of interest rate fluctuates throughout the loan tenure.
  7. Equated Monthly Installment (EMI): It is the amount that you have to repay the bank each month during the loan tenure.      
  8. Processing fees: These are bank charges to process a Home Loan.
  9. NOC: NOC stands for No Objection Certificate. On clearing the loan the bank issues a legal document to you saying that it has no objection in transferring the property ownership back to you.
  10. Occupancy certificate: Occupancy Certificate is a legal document issued by the local planning authority to certify that a building is fit to be occupied. It is to be obtained before occupying a home.
  11. Reset date: It is mentioned in the reset clause. Reset clause in a Home Loan agreement states the period after which a fixed rate Home Loan will get converted to a floating rate Home Loan.
  12. Basis points: Also known as bps, it is a common unit of measurement for interest rates. It is 0.01. It is used to denote the percentage change in home loan interest rates.
  13. Tripartite agreement: It is a legal document involving the buyer, bank and seller. As the property is still in the sellers name until possession or total repayment of the Home Loan, the buyer is included in the agreement with the lender.

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