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Having your own home is a dream that all have at one point or the other. And one of the best ways to buy your own home is by applying for a home loan . But when you’re in the market for a home loan, you’ll come across a lot of fancy words that sometimes you cannot make heads or tails of. But do not worry, in this small guide we’ll list out some common terms and that are frequently used in home loan paperwork and their detailed meaning. Read on!
1) Full disbursement:
Disbursement on its own means the process of getting your funds from the lender. The lender disburses the loan amount to you. Full disbursement means the entire loan amount is paid to you in one go.
2) Partial Disbursement:
As opposed to full disbursement, a partial disbursement simply means that the lender will release the loan amount in parts. This is usually seen when the property for which the loan has been availed is under construction and the lender pays the amount in instalments as the construction progresses.
3) Equated Monthly Installments or EMIs:
An EMI is the installment that you pay as repayment for your availed loan every month. An EMI consists of both the principal amount as well as the interest.
4) Credit Score/CIBIL Score:
Your credit score or CIBIL Score is a number that represents your ability to repay the loan. It is calculated by taking into account your previous loan repayment and credit history. A good credit score is more likely to get your loan approved and vice versa.
5) Pre-EMI:
In case of partial disbursement of the loan amount, you need not start paying the entire EMI every month. You’re only required to pay the interest amount on the loan amount disbursed until your actual EMIs begin. This payment is termed as Pre-EMI.
6) Margin:
The margin in home loan terminology is the difference between the maximum amount that the lender can pay and the actual market value of the property. It is effectively the down payment that the borrower will have to pay.
7) Loan to Value Ratio (LTV):
The LTV is the ratio of the loan offered by the lender and the market value of the property.
8) Balance Transfer/Refinance:
Balance transfer or refinancing is the term used when a borrower wishes to transfer their existing loan to a new lender and continue their repayment schedule with the new lender.
9) Prepayment Penalty/Charges:
Sometimes, you may have surplus funds and you may wish to pay off your loan much before your expected tenure. In this case the lender may charge a prepayment penalty for the same. Do note, however, that there are no prepayment charges for home loans taken by individuals. Prepayment penalty is only allowed for home loans taken by non-individuals borrowers.
Conclusion
The above are some commonly used terms when you’re talking about home loans. So, when you’re off searching for the best home loan deals out there, make sure you go through this list of basic terminology of home loan so that you’re well versed to talk to any lender or agent and show them that you’ve done your homework.
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
