Home Loan Facts
Buying & financing your home is a long term commitment – emotionally as well as financially. As you make the decision to purchase a home – you are entering into a financial commitment that should last about 15-20 years. Whether we accept it or not the home loan will have a bearing on our lifestyle and day to day habits.
Financing a home will place curbs on your future spending ability and available disposable incomes, it is therefore important to take a well informed decision in this regard. It is important to be aware of the important terms & factors about Home Loans.
Margin or Down payment: Your home loan covers only up to 80% or 90% or at best 95% of the value of your home. The rest is required to be paid by you from your savings. Note, that the higher the cost of your property the higher is the quantum of your down payment. Likewise, the lower percentage of the cost covered under the loan the higher is the quantum of your down payment.
EMIs: EMIs or equated monthly installments is the amount that you will be repaying the bank each month. This is a combination of both principal & interest.
Interest rate: The rate of interest on your loan can be either fixed or floating. In case of the latter you will be paying the same amount for the entire term of the loan. Floating Interest rates are dependent on the RBI base rate – with EMIs increasing or decreasing marginally based on the changes to RBI rates.
Disbursement: The loan amount being credited into your account is termed as disbursement. Often it is done in tranches instead of being a one-time disbursement.
Mortgaging: Mortgaging to finance a new home is a viable option for those who are purchasing a second home or have ancestral property to fall back on. The risks however include arriving at the right valuation of the existing property and/or assets.
Offer Letter: Once the home loan is sanctioned, the bank provides you with a letter stating the loan amount approved, interest rate, term of the loan, EMI, and other conditions of the loan.
Pre-Approved Loans: Based on your credit history with the bank, it can pre-approve a home loan against your name. In this case, the approval and disbursement time can be substantially lower.