Every one of us has fantasized of owning a home at some time in our lives. Having our own home is the surest means of ensuring our financial security. It is a lifelong asset that we may pass on to our children, ensuring their financial security. However, purchasing a property is not as straightforward as it looks. With property prices rising at such a rapid pace, most people can only afford a small portion of the house's actual price as a down payment. The remaining funds are secured by a house loan. Knowing all of the terminology involved with a home loan is an important part of the preparation process.
What is the Definition of a House Loan?
A house loan is simply the amount of money that may be borrowed at a fixed or adjustable rate of interest from a bank, a non-banking finance firm, or a housing financing company. The borrower can return the lent amount over a certain period of time, generally up to 30 years, in manageable EMIs. A property must be either a personal or commercial property to qualify for a house loan. There are several different sorts of house loans to pick from. Let's start by learning about the many types of house loans and their conditions.
Amortization: Loan payments in equal monthly amounts planned to pay off the debt at the end of a specified time, including accumulated interest on the outstanding total, are referred to as amortization.
Amortized Loan: A loan that will be repaid over time in equal or nearly equal payments of principal and interest, with no particular balloon payment prior to maturity.
Anniversary Date: The day on which the twelfth payment is due is known as the anniversary date. This happens every year on the same calendar month and day on any MOP Promissory Note.
APR (Annual Percentage Rate): A percentage rate that represents the amount of interest earned or charged over a given period of time.
Applicant: A person who has been designated as qualified to apply for a loan.
Application Checklist: A detailed set of documents that the borrower and the university must submit to the Office of Loan Programs for pre-approval or loan approval. OLP-09 is another name for this kind.
Appointee: An individual who has been offered and accepted a full-time post is referred to as an appointee.
Appraiser: An appraiser who has been approved to assign a financial value to a single-family dwelling.
Automated Clearing House: An electronic funds transfer network that allows participants to send money directly from their bank accounts to their lenders. Borrowers who are not currently on active payroll are not eligible for this function.
Balloon Payment: An installment payment on a promissory note that is much greater than the previous installment payments specified under the promissory note's provisions, generally the last one for discharging the obligation.
Base Rate: The lender's minimal interest rate is referred to as the base rate. This is the rate at which a lender will not give a house loan if it falls below a certain threshold.
Beneficiary: On a note backed by a deed of trust, the lender.
Borrower: A qualified individual who will be principally responsible for repayment of a loan, as defined in a signed document provided by the appropriate government or financial body.
Bridge Loan: A short-term loan given to a borrower when the net profits from the sale of a previous dwelling are insufficient to fund the purchase of a new home. The net revenues from the sale of the previous house will be used to pay off a bridge loan.
Close of Escrow: The meeting where the property and finances are legally transferred between the buyer, seller, and lender (or their representatives).
Certification of Eligibility: Form verifying that the applicant is eligible for a loan and the amount of the loan allocation.
Community Property: Property gained during marriage by a married couple, or any partner in a married couple, when neither spouse's independent property has been obtained.
Collateral/Security: Due to house loans often varying from thousands to crores, lenders want collateral or security in the event that the borrower is unable to repay the loan. This is referred to as collateral. Because the lender uses the pledged asset as security if the borrower fails on the loan, the terms security and collateral are interchangeable. Because the lender is protected by the collateral, a house loan secured by collateral usually has a lower interest rate. In the case of a house loan, the property used to secure the loan is usually considered security. This provides the lender the legal authority to sell the property to recoup the loan's unpaid balance.
Credit Appraisal: Before approving your loan, the lender carefully evaluates your loan request, taking into account a number of factors. Your income, savings, age, work position, and credit scores are all factors to consider. They will also look into your past due payments, credit repayment history, and monthly credit card debt, among other things. These variables aid them in determining if you are eligible for a loan and, if so, what loan amount you should receive. Credit appraisal is the term for this.
Disbursement: The procedure of the lender releasing the loan funds to the borrower. Only once the lender obtains all of the required documentation is the loan money given.
Equated Monthly Installments (EMI): Borrowers can pay back their loans in monthly installments. The principle and interest components of the loan are both represented by the EMI. Your lender calculates the EMI amount based on the loan's interest rate and length. The borrower must continue to pay EMIs until the whole principal loan amount as well as interest is repaid. Lenders provide house loans for a set length of time. You may pay off your home loan principle and interest in 20-25 year EMIs. Home loans are sometimes available for up to 30 years.
Fixed Interest Rate: A fixed interest rate simply indicates that the borrower may repay the house loan at a set rate for the duration of the loan. In this case, the monthly installment amount remains constant throughout the loan term. This rate is suitable for those who organize their finances meticulously.
Floating Interest rate: A floating interest rate is one that swings or changes in response to market conditions. If you pick a fluctuating interest rate, you'll pay a different EMI amount each month depending on the base rate.
View the home loan jargon you need to know from H to Z here.