Friday, May 06, 2011

Know your home loan better

Any individual who is planning to take a home loan should be familiar with the terminology that home loan financer as well as the loan agreement mentions every now and then. An understanding of such terms makes a home loan deal clear in the mind of the borrower. Here are some terms that one must know while he goes to shop for a home loan.

Margin Money
When you are searching for a home loan, you always come across the term margin money right at the time of sanction of the loan amount. Any financer or lender does not lend the entire amount of the housing property. It will only extend around 80% to 90% of the cost of your home and remaining amount has to be brought by the borrower. This amount which the borrower brings is known as the margin money. Commonly it is known as the down payment. It is basically the difference between the total cost of a project and the sanctioned loan amount.

Equated Monthly Installments
When we take housing loan or to that matter any loan, we also have to repay it in a certain period of time. Equated Monthly Installments or EMI is the amount of money that is paid every month towards the repayment of a loan. It is used to pay-off both interest and principal each month, so that over a specified number of years, the loan is paid off in full. The EMI is calculated on the basis of interest rate charged on a loan, principal which is the actual amount of the loan and the loan tenure which is the total number of years considered to repay the loan.

EMI benefits the borrower by making him aware about the money they will need to pay toward their loan each month, making the personal budgeting process easier.

In case you plan to buy a property that is under construction, then the lender does not provide the entire loan amount to the builder in one go. Payment is made in installments till the time construction is complete and once it is over, the full payment is released. During this time, before the entire loan is disbursed to the builder, you have to pay pre-EMI to your lender. This pre-EMI is actually the interest on the amount disbursed till the final disbursement is made. Once the full disbursement is made, your EMI starts.


Money paid out to discharge a debt or an expense is called disbursement. It is the actual payout to the borrower of loan funds, in whole or part. If the payment is made fully at one go then it is referred to full disbursement. Here the lender gives the entire loan amount to the seller once the borrower completes all the formalities including document submission and payment of down payment. However if the lender gives the loan amount in stages then it is called partial disbursement. It is generally made when the borrowers buy a home that is under construction.
In some cases when the lender agrees to give out the full amount of the loan taken for a house that is still under construction, then this is known as advance disbursement. This is a facility that the lender provides when the borrower request him or he is fully convinced that the builder will complete the construction on time.

Credit appraisal
It is the process by which the lender assesses the credit worthiness of the borrower before sanctioning the loan. It revolves around a certain number of factors such as verification of borrower's savings, income, age, qualifications, nature of work, etc. Through this procedure the lender assures if the borrower is eligible for a loan and thereby decides on the loan amount to be sanctioned.

Pre approved property

A pre approved property is one where the builder gets a prior approval for his property from some home finance companies. This means that the lender will examine all legal documents of the builder along with its ability and track record to complete the construction in time. If the lender is convinced, the builder gets a stamp of approval. All this enable a quicker home loan if a buyer chooses to buy a home under the pr-approved property. However if the builder fails to complete the construction in time, the finance company is not liable to waive off any charges such as interest payment or installment amount.

These above mentioned terms may help you to analyze your home loan closely.


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