Terms you must know @ Home Loans

Down Payment / Margin

Down Payment or Margin is the percentage amount which any housing loan finance company funds to the borrower. This percentage is around 80% to 85% of the cost of your property and the remaining 20% to 15% you have to put in the balance which is called Down payment or Margin money

Resale
Instead of buying new home from the builder, if you are planning to buy a home which already is in the name of some other person and that person is planning to sell it. Then it is called resale.

Equated Monthly Installments
To repay the loan every borrower have to pay some amount to the housing finance company on monthly basis which is called EMI. It remains constant throughout the repayment period.

• An EMI is an unequal combination of Principal amount and the interest rate.
• The principal (the actual loan amount).
• The repayment period (the number of years you will take to repay the loan).
• The Home Loan Rates.
• How the rate of interest is computed (monthly reducing, quarterly reducing or annual reducing basis).

Disbursement

Full disbursement – A full disbursement is when the entire cost is paid at one go; the home loan company hands over the entire payment to the seller. The cheque is disbursed (it is never in cash) only when you have submitted all the documents required and have made the down payment. If this is a resale, then the cheque is made out in the seller’s name. If you are purchasing your home from a builder, then it is in the builder’s name.

Partial disbursement – A partial disbursement is made in stages (not at one go as in the case of full disbursement). When purchasing an apartment from a builder and it is under construction, the home loan company will not release all the payment at one go. The money will be released in stages. For instance, after the completion of the first floor, 20% of the payment will be made. After the completion of the last floor, 40% and so on and so forth. Hence payment is construction linked and disbursed accordingly.

Advance Disbursement Facility
If the house is still under construction, then a partial disbursement is made. However, in some cases, the home loan company may be willing to make the entire payment even if the construction is not complete.

This is known as an advance disbursement and will occur only in both these instances:

• If the buyer requests the home loan company to do so.
• If the home loan banks is fairly convinced the builder will complete the construction on time.

Pre-EMI

When you buy a home that is under construction, the home loan company will not pay the entire amount to the builder.
Payment will be made in stages. As construction is completed, payment is released. This is known as partial disbursement.
You start paying your EMIs only after the final disbursement. Till then you pay the home loan company a rate of interest on the amount partially disbursed. This interest is called pre-EMI.

If your home loan is going to cost you 8%, you will be charged 8% simple interest on payments made till date. This will go on till the final payment (disbursement) is made and your EMIs start.
So the longer your builder takes to complete construction, the more you end up paying.

Offer Letter
Once the loan is sanctioned, you will get an offer letter stating a number of details.

1. Loan amount
2. Rate of interest
3. Fixed/ flexible rate of interest
4. Tenure of the loan
5. EMI amount

If offered under a special scheme, details of the scheme

Any other conditions of the loan

This letter does not mean the loan is yours. It only means the home loan company has agreed to consider you as one of its customers.
It will then look into the various property and legal documents as well as value the property you are buying. The loan will only be disbursed once these formalities are complete.

PDCs
Post-dated cheques are dated ahead of time and cannot be processed till the date indicated.
Generally, the home loan company will ask for a year’s supply of cheques or maybe even two or three years. At the end, you will have to replenish the supply for the following years.

These cheques will be addressed to the home loan company, signed by you and will state the exact EMI to be paid.