When planning to buy a house, understanding the landscape of home finance is crucial. Familiarizing yourself with the following essential home loan terms can help you make an informed decision.
1. Principal Amount
The total amount borrowed from the lender is known as the principal amount. This is the base figure on which interest is calculated.
2. Interest Rate
The interest rate is the percentage charged on the principal amount. It can be fixed or variable, impacting your monthly loan payments.
3. EMI (Equated Monthly Installment)
EMI refers to the monthly payment made towards settling the home loan. It consists of both principal and interest components.
4. Tenure
Loan tenure is the duration over which the loan is to be repaid. Typically, home loans can extend up to 30 years.
5. LTV (Loan-to-Value) Ratio
LTV ratio is the percentage of the property value that the lender can finance. A higher LTV ratio may indicate greater risk for the lender.
Also Read :- What Factors Affect Your Housing Loan Eligibility and Approval?
6. Pre-EMI
Pre-EMI is the interest paid during the construction period of the property before the full EMI begins.
7. Processing Fee
This non-refundable fee is charged by lenders to process the loan application.
8. Amortization Schedule
It is the complete loan repayment schedule outlining each payment, breaking down the principal and interest components.
9. Margin
The margin is the difference between the property’s market value and the loan amount sanctioned.
10. Balance Transfer
This process allows you to transfer the remaining loan amount to another lender for better interest rates.
11. Foreclosure
Foreclosure is the process of settling the outstanding loan amount before the tenure ends, often involving a penalty.
Conclusion
Educating yourself about these essential home finance terms ensures you are well-prepared to navigate the complexities of a home loan. Understanding these terms can empower you to make financially sound decisions, paving the way to a smooth home buying journey.
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