THE HOME loan segment is booming. And rightly so. With real estate boom likely to last for at least another two years (by conservative estimates), it’s time you planned your dream home.
However, when you apply for a home loan, it is advisable that you don’t get lost in the jargon of loan managers. The Housing Finance Institutions (HFIs) are falling head over heels to woo the borrower. So here are a glossary of words you would encounter while applying for a home loan:
Fixed rate of interest: It is the rate of interest, which remains fixed over the tenure of the loan. The rate remains constant after the final disbursement has been made.
Margin money: HFIs do not fund the full value of any asset. They would expect the customer to contribute a certain percentage of the asset as margin. This is known as Margin Money.
Load bearing construction: Very few borrowers are familiar with this terminology. The developers for properties that would not exceed 1 or 2 floors use this term. There is no concept of slabs and columns in this kind of construction.
Mortgage: There are three types of mortgage —
Equitable mortgage – This is a mortgage, which is by way of deposit of title deeds which means that all the documents of the property have to be deposited with the HFI when you approach them for a loan.
{{/usCountry}}Equitable mortgage – This is a mortgage, which is by way of deposit of title deeds which means that all the documents of the property have to be deposited with the HFI when you approach them for a loan.
{{/usCountry}} Mortgage by way of Memorandum of Entry – With this, a borrower has to sign a declaration stating that he or she is mortgaging the property to the HFI.
Registered mortgage or English mortgage - This is one of the safest forms of mortgage for any HFI. No documents of the property are required to create this kind of a mortgage.
Personal Guarantor: Many HFIs would insist that the borrower provide for one or two personal guarantors. The guarantor is required to meet the norms specified by the HFI to acquire the loan.
Pre–approval: You have a facility to apply for a loan before you decide on the property. However, disbursement takes place only after the property is selected and is technically and legally cleared.
Refinance: If you are an existing home loan customer with an HFI and you have availed of the loan at a higher Return on Investment (RoI) then you have the option to switch to a lower rate of interest. You could do this either from the same HFI or from a different HFI.
A Step-up Loan
A step-up loan is a kind of home loan, which offers varying equated monthly installments (EMIs) spread over the loan’s tenure. For example, the EMI is lower in the initial years and might get higher in later years.