Preparing to approach a bank for a home loan? Familiarising yourself with fundamental loan terminology is essential for a smooth application process. Owning your dream home in India is a major milestone, but navigating home loans can feel overwhelming. Don’t worry! This guide simplifies key terms like EMI, down payment, and CIBIL score. By understanding these essentials, you’ll feel confident approaching banks and securing the best home loan deal for your needs.
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Understanding these terms will help you navigate the home loan process more confidently when approaching a bank in India.
Loan Basics:
- Loan amount: The total sum you borrow from the bank for your property.
- Margin Money: The amount of down payment that the borrower needs to contribute towards the property’s purchase price.
- Interest rate: The cost you pay for borrowing the money, typically expressed as a yearly percentage.
- Loan tenure: The total duration (in years) to repay the loan amount with interest.
- Loan to Value (LTV) Ratio: The ratio of the loan amount to the appraised value of the property. It determines the maximum loan amount a borrower can get.
- Down payment: The initial amount you pay upfront, typically a percentage of the property value.
- EMI (Equated Monthly Instalment): The fixed monthly amount you pay towards the loan, including principal and interest.
- Loan Agreement: A legal document outlining the terms and conditions of the home loan, including interest rates, repayment schedule, and rights and obligations of both the borrower and the lender.
Eligibility and Documents:
- Credit score: A numerical rating reflecting your creditworthiness and loan repayment history. For example, a credit score generated by CIBIL, a major credit information company in India. (CIBIL score is a common keyword)
- Income documents: Salary slips, tax returns, or business income proofs.Property documents: Sale agreement, approved building plans, and ownership proof.
Additional Considerations:
- Processing fee: A one-time fee charged by the bank for processing your loan application.
- Prepayment charges: Charges levied by the lender if the borrower repays the loan amount before the completion of the loan tenure.
- Fixed Rate vs. Floating Rate: Fixed-rate loans have a constant interest rate throughout the loan tenure, while floating-rate loans have interest rates that vary with market conditions.
- Balance transfer: Shifting your existing home loan to a different bank for potentially better rates.
- Mortgage Permission: If you own a property on leasehold land (land with a lease agreement), you might require permission from the landowner (government authority or developer) before mortgaging it. This ensures they are aware of the loan and have recourse in case of defaults.
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