Every industry has some jargons and common terms that one should be aware of and the lending or the finance industry is no exception.
What’s more, if you are a first-time home buyer and availing a Home Loan, you need to aware of some common loan terms to make your loan journey smooth.
This is more than important to know as the housing loan is a long-term obligation and may affect your monthly income for long and you should familiarize with some terms.
Here are some common terms that you may have to deal with if you are willing to avail a Home Loan to purchase a home of your choice.
1. Floating and Fixed Home Loan Interest Rates
Floating rates let you pay fluctuating EMIs as the Home Loan interest rate changes as per the market conditions. If you don’t earn a higher income, opting for this type won’t help you. On the other hand, opting for the fixed interest-based Home Loans will help you pay only a fixed monthly EMI which will help you manage monthly cash flow easy.
Home Loans are secured loans which means you will need to pledge something to get it. A collateral may be an asset that you will give to a lender for seeking the Home Loan. If you fail to repay the housing loan, your lender may use the collateral to recover the loss.
3. Closing Costs
Closings costs are nothing but documentation fees, attorney charges, and origination costs. The home buyer would need to pay these. Thus, before availing the Home Loan, ensure to check lender’s overall fees and charges.
4. Down Payment
Always know that you can’t secure the entire cost of the home that you wish to buy as the Home Loan. As per norms laid down by the Reserve Bank of India (RBI), you can grab up to 80% of the home’s cost as the housing loan from a lender. The remaining 20% of the cost needs to be borne by the borrower and that’s what is known as the down payment. The more down payment you can make, the lesser amount you need to repay as it also carries the interest rate charges.
5. Equated Monthly Instalments (EMI)
EMI or the Equated Monthly Instalment is the amount that a borrower pays to his/her lender each month after securing a Home Loan. The EMI consists of the principal loan amount and the interest owned. To determine your Home Loan EMIs, utilise the Home Loan EMI calculator to know how much amount you have to pay as monthly EMI. Some lenders can provide you 3-EMI holiday period to help you prepare for the ensuing payments after availing a Home Loan deal.
If you wish to close the loan account even before the scheduled tenor of the same is called foreclosure. In case if you have some surplus amount, you can opt to foreclose the housing loan account before the completion of its original tenor. Nowadays, top online lenders do not levy a penalty for foreclosing the loan earlier than before.
7. Post-dated Cheques (PDCs)
As the name suggests, these are cheques with future dates and can’t be cleared before their scheduled dates. Many Home Loan creditors may ask you to provide them with a year’s or 6-month’s supply of PDCs containing EMIs and your signature.
The Bottom Line
If you are a first-time home buyer purchasing one using the Home Loan, this post may have given you enough information about some loan terms. Now that you are well-versed with them, you can confidently apply for a Home Loan online!