Home Loan Terms You Should Know Before Taking Home Loan

Home Loan Terms You Should Know Before Taking Home Loan

A home loan is an amount of money an individual borrows from a bank or financial institution to purchase or construct his dream home. A home loan is considered as a contract agreement between the moneylender and the borrower that allow the borrower to acquire some money to buy or construct their own home. However, before applying for the home loan, it is very important for a borrower to be aware of some very important home loan terms. Let’s discuss them one by one.

Important terms generally used in Home Loan:

EMI: EMI is one of the most talked-about terms when it comes to home loans. EMI, precisely known as Equated Monthly Instalment, is the monthly investment made towards the repayment of the loan. EMI is often pre-calculated based on factors such as the total amount of loan, loan tenure, rate of interest, and the borrower is communicated about the same at the time of the loan.

Down payment or margin: Generally, the bank would approve a home loan, calculating nearly 70-80% of the property value. But the liability will be on the borrower to arrange the rest of the money. A down payment or margin is the sum of money that the borrower would need to arrange by his/her very own methods.

Credit Appraisal: Before approving a home loan, the bank generally checks your repayment capability by considering the factors like income of the borrower, age, the order of assets and liabilities, and so forth. Credit appraisal is the procedure through which banks check your repayment limit and ensure that there is no possibility of default.

Post Dated Cheque: Post-dated cheque means the list of the cheque that the borrower draws, for the next 1 or 2 years which would serve to withdraw EMI installment (over Electronic Clearing Service mode). These cheques have future dates and have to be cleared on the mentioned date.

Pre-Approved Property: Before approving the loan, banks generally check the practicality of a project or property before the home loan sanction. A few builders complete this activity to utilize it as a pitch to promote the property. However, one should check all the legal documents cautiously before acquiring a property, regardless of whether it is pre-approved or not.

Resale: The term resale is used in the situation when you purchase a property from somebody who owned it previously. It states that you are not buying another home directly from the builder. While purchasing a resale property, be sure that you have a record of all previous owners of the property, and the current seller has undisputed possession. This will guarantee the smooth handling of the loan application.

Pre EMI: Amount paid as interest before completing the disbursement of the loan amount.

Collateral: In some cases, the bank needs security which is an asset to guarantee repayment capacity. This benefit will be utilized to recover the sum if there should be an occurrence of any default.

Disbursement Mode: Once the verification and all the legal formalities are completed, the bank grants the home loan. There are three methods of home loan disbursement.

A) Advance – Process when the full loan amount is disbursed to the borrower before the construction of the home.

B) Partial – When the bank disburses a part of the loan amount before the construction and pays the remaining amount after the completion.

C) Full – When the total amount is disbursed only after the construction of the property.


home loan agreement could be known as the guidebook for your loan. Before benefiting a home loan, be sure that you go through all the details of the agreement. If needed, look for explanations from your loan specialist or look for proficient help. You have to examine all the details carefully before you sign on the dotted line fundamentally.

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