With home loans allowing people to buy a property they always dreamt of, it is expected to witness a growth of 17 to 19 percent this year
Financial institutions these days are coming up with more and more attractive offers to grant home loans to first time home buyers. While borrowing a loan may seem like the best option for those willing to buy a house they always wanted to, several home buyers ignore to research the various things associated with a home loan. One of the most important things they miss out is the important terms that are associated with it. The knowledge about these terms makes it easier for borrowers to understand in detail all the clauses associated with the loan so that they may not face any difficulty later.
RealtyNXT explains the terms that every home loan borrower must know about.
1. Down Payment
Usually, the amount of money that banks sanction to cover is around 70 to 80 percent of the total cost of the property. The home buyer needs to arrange the fund for the remaining amount. This remaining amount that is paid by the borrower is known as the down payment.
This means that if the bank is willing to cover around 20 percent of the amount, the home loan borrower needs to arrange the remaining 20 percent of the amount on his own. This 20 percent that he pays is known as the down payment.
It stands for Equated Monthly Installments. It refers to the fixed amount that needs to be paid to the bank on a specific date every month by the borrower to repay the loan. The EMI is calculated based on the amount that has been borrowed, the interest rate that has been applied to it and the tenure of the loan.
Borrowers need to make sure that they pay the EMI every month without failure so that their CIBIL record is good and they do not have to face any hassles later.
Once the bank approves the home loan, they will ask for a security or collateral from the borrower. The bank collects this as an asset so that the repayment ability of the borrower can be ensured. In case the borrower fails to repay the loan, the bank will use this asset to recover the loan.
When the borrower of the home loan lists all his details for the approval of his loan, he has to mention a nominee. A nominee is a person who receives the benefits and ownership of the property when the borrower is no more. Borrowers usually list the name of a nominee when they insure their home loan or have purchased a home loan.
In the case of the borrower’s death, the insurance provider will be responsible to pay the outstanding loan amount.
When borrowers apply for the home loan, they must mention a guarantor. A guarantor is a person who assures the credibility of the borrower. In case the borrower defaults repaying his loan, the guarantor takes the responsibility and guarantees to pay the outstanding amount.
Usually, it is recommended to choose a guarantor who is a close friend or a family member of the borrower. Also, the guarantor needs to submit a few documents like his income, identity proof and property documents to show that he will be capable to repay the loan in case the borrower fails to repay.
6. Loan To Value (LTV) ratio
This term is mostly used by financial institutions like banks to determine the ratio of the loan to the value of the asset purchased. It can be calculated by dividing the total amount of the loan by the total value of the property for which the loan has been taken.
LTV is one of the key factors used by the lending institutions to assess if the borrower will be able to repay the loan.
ALSO READ: Things To Check Before Closing A Home Loan
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