Coding the Quick Facts & Decoding the A to Z Terminologies of Home Loans

Home loans are the most affordable and strategic instrument of saving your hard earned money. Invest on land or buying a property is regarded as finest investment of money which will give you highest rate of return compared to any other saving instrument. Home loans offer high-value financing at cheap interest for a longer period of time. Home loans have paved the way to secure your long-term security which will offer you a good return on investment without facing any depreciation just like other objects and properties.

Prominent Terms of Home Loans

From a layman’s view banking sector is vast like the sea, where they offer thousands and millions of rules, terms and schemes for us. As a commoner we might get confused about all these if we don’t have a strategic point of view about the services. So, before trying your luck with the investment in real estate sector, get acquainted with the terms below.

Loan Disbursement: It is the process, when the lender starts paying the loan amount after abiding by and verifying all the process.

Advance Disbursement: This is the case when the lending institutions are ready to pay the whole amount before the completion of the construction. This happens only if buyer requests the lender to pay or the financial institution is convinced that the builder will complete the project on time.

Partial Disbursement: In such a case the lender releases only a partial or limited portion of the loan amount to the borrower.

Full Disbursement: It occurs when the home loan company hands over the entire payment to the seller and pay the entire cots in one go.

MCLR: Marginal Cost of Funds based Lending Rate or MCLR is lending rate which determines the minimum amount of interest rate that should be paid for home loans. It is calculated based on marginal cost of funds and also looks after various funding sources and RBI regulations.

Smart Loan: This type of loan helps you save interest payment and in turn reduce the tenure of the loan. It can be paid by combining your current and savings account. It enables you to use your surplus fund for repayment of your loan and thereby you can reduce the interest liability on your home loans.

Loan to Value Ratio (LTV): It is a measuring component which compares the amount of your mortgage and the appraised value of the property. This is the ratio, in which the maximum loan amount is offered to actual market value of the property. If your LTV ratio is greater, then you need not pay higher amount on down payment, on the contrary if it is low, then you need to pay higher amount for down payment.

Pre-closure: By using this instrument, the borrower of loan can repay the full amount of the loan beforehand and can close the deal. In such a case the borrower has to apply for Pre-closure. After approval, he can pay the amount by paying bulk amount. Before proceeding you have to check the prepayment penalties and investment opportunities.

Home Loan Balance Transfer: By using this method the borrower can switch the outstanding loan amount to any other lender who is offering lower rate of interest and better and reliable terms and conditions.

10 Quick Facts before considering Home Loans

If you are determined enough to invest your hard earned money to buy your dream house, then this piece of writing is for you. Let’s check out few quick facts about home loans:

• Before opting for home loans, always check about background of the financial institution. It should be registered with Reserve Bank of India.
• The property which you will take should be registered with RERA.
• Always calculate the EMI beforehand. It should not exceed more than 50% of your salary.
• Try to make a large amount as down payment, which will ensure you will have a lower principal amount. The lenders will always calculate the interest rate on the principal amount. So, the lower the principal, the lower will the rate.
• We should make a big purchase during the initial stage of our career, so that we can get ample amount of time to repay the loan without having a tough burden.
• Do not overlook the factor of tax benefits on home loans. If you have taken a loan against a property you have to check that the construction should not exceed 5 years from the end of the financial year in which the loan was taken.
• If the construction exceeds the stipulated time, i.e. 5 years, you can claim deductions on interest of home loan only up to Rs. 30,000 for the financial year.
• Use strategic AI tool, like the home loan EMI calculator, to determine how your EMI will alter when the tenure changes.
• Try to increase your Cibil score, because the higher the Cibil score, the lower will be the interest rate. Always monitor your Cibil score by clearing debts, paying credit card dues on time, rectify errors on credit reports.