Saturday, 6 February 2016

All you need to know about Home Loans - Part 1

Dream homes come with all sorts of strings attached, one of those being a home loan. While getting a home loan, it is important to know everything possible about it. Here are some of the must-know keywords related to home loans.

Down Payment – Loans for expensive commodities like a home or a car are usually started by the payment of an initial deposit and then the rest of the amount is paid back in installments. This amount is usually about 5-25% of the total amount known as the loan-to-value ratio. The rest of the amount is given by the financial institution. This makes it affordable for most people.    Down payments do not include the cost of registration and other such extras.

LTV ( Loan-to-Value Ratio) – LTV or Loan-to-Value Ratio is the total loan amount divided by the agreement value of the property in question. So, if the property is valued at 30,00,000 lakhs and the bank gives you 27,00,000 lakhs, then the LTV is 90%. The RBI ceiling limit on LTV has become 90% for properties valued at 30 lakhs and below while it is 80% for 30-75 lakh properties.

Disbursement of Home Loans: The release of the loan amount is called disbursement. It differs for fully built properties and those under construction. There are two main types:
Full disbursement: refers to the release of the complete loan amount in a single transaction. For buildings under construction, this is done when the builder is trusted to be able to complete construction.
Partial disbursement: refers to the release of the loan in separate stages. The criteria for this release are based on the property. If it is for a property being constructed, the amount is released based on completion.

Interest  – The definition of interest is money paid regularly at a particular rate for the use of money lent. This is usually done using the EMI system.

EMI stands for Equated Monthly Installment and this can be defined as the amount to be paid to the bank or financial institution every month until the loan is paid back. There are two parts to EMI. The initial EMI payment is usually used to account for the interest while the later part is used to pay the main amount known as the principal.

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