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Home loan terms explained
Buying a house is more than just a financial decision—it’s a journey toward fulfilling a cherished dream. Yet, the path to homeownership is often dotted with complex terms and decisions, especially regarding housing loans. From understanding the basics of principles and interest to navigating the nuances of LTV ratios and credit scores, having clarity on these concepts can make the process less daunting and more empowering.
Here’s a comprehensive guide to decoding the key housing loan terms you need to know before making one of the biggest investments of your life.
1. Principal Amount
This is the loan amount you borrow from the bank or lender. For example, if you need Rs 40 lakh to buy a house, that Rs 40 lakh is your principal.
2. EMI (Equated Monthly Instalments)
The monthly payment you make to repay the loan. It includes both the principal and the interest. A higher loan amount or interest rate means higher EMIs.
3. Interest Rate
The fee charged by the lender for letting you borrow money. It can be of two types:
Fixed Rate: This doesn’t change during the loan tenure.
Floating Rate: Changes as per market conditions, which can increase or decrease your EMIs.
4. Loan Tenure
The period over which you repay the loan. Typically, home loan tenures in India range from 5 to 30 years. A longer tenure means smaller EMIs but more interest paid overall.
5. LTV (Loan-to-Value Ratio)
The percentage of the property’s value the bank is willing to lend. For example, if a property is worth Rs 50 lakh and the bank offers 80% LTV, you can get a loan of Rs 40 lakh. The rest, Rs 10 lakh, is your down payment.
6. Processing Fee
A one-time charge by the bank for processing your loan application. It’s usually a small percentage of the loan amount, ranging from 0.25% to 1%.
7. Prepayment and Foreclosure
Prepayment: Paying off a part of your loan before the tenure ends. It reduces your principal and overall interest.
Foreclosure: Paying off the entire loan amount before the end of the loan tenure. Some banks charge a penalty for prepayment or foreclosure.
8. Credit Score
Your credit score reflects your creditworthiness. A score above 750 is ideal for getting attractive interest rates for housing loans.
9. Margin Money
The amount you must arrange on your own is typically 10–20% of the property’s value. Banks don’t cover this portion.
10. Balance Transfer
If you find a lender offering a lower interest rate, you can transfer your loan to them to reduce your EMI burden.
11. Stamp Duty and Registration
These are state government charges for registering your property in your name. While not part of the loan, they add to the overall cost of your home purchase.
12. Moratorium Period
A grace period when you don’t have to start repaying your loan. It’s usually given during construction or for a specified time after the loan disbursement.
Understanding these terms can empower you to make better decisions and save money in the long run. Ready to take the plunge? Use this guide as your roadmap and secure the best housing loan for your dream home.
Disclaimer: The views and investment tips by experts in this News18.com report are their own, not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.
