Close

	Receiver's Name:		*
	Receiver's Email:		*
	Your Name:		*
	Your Email:
	Your Message:

Home Loans Glossary

Acceptance Letter

Once a  home loan is issued by the bank/housing finance company by way of sanction letter, the applicant communicates his willingness to accept the loan by way of an acceptance letter. He has to send this within a time frame of 1-3 months from the date of the sanction letter.

Advance EMI

Number of equated installments paid out in advance at the time of disbursement of loan. You would need to give post dated cheques for the same.

Credit Appraisal

Every Housing Finance Company or bank has its own panel of credit appraisal officers who process applications. They take into account various factors like income of the applicants, number of dependents, monthly expenditure, repayment capacity, employment history, number of years service left over and other factors, which affect the credit rating of the borrower. Proof of income will also be verified for the purpose of approval of loan. The time taken for receipt of such information is crucial since it affects the length of time required for a home loan approval.

Credit Processing Authority (CPA)

The credit sanctioning authority which approves lending to a customer. Most banks and financiers have in-house credit teams acting as CPAs.

Deduction Against Salary (DAS)

This is an arrangement when a salaried employee asks his employer to deduct the installment from his salary and pay it to the financier. This is done with the mutual consent of the employer and the financier.    

Direct Marketing Associate (DMA) / Direct Sales Associate (DSA)

This is an agency of a financier which takes care of customer sales and service. Most home financiers do not have their field sales force as this is handled by the agency. They are authorised by the financiers.

DPC - Delayed Payment Charges.

It is the penalty for delay in paying the installments. This needs to paid along with the next installment.

EMI - Equated Monthly Installment.

This is the fixed amount payable every month for repayment of the loan over the tenure of home loan. The interest and principal component of this installment changes on a monthly basis. Usually, post dated cheques of the home loan EMI amount are taken upfront.

Down Payment

Housing Finance Companies/Banks normally give loans up to 80-85% of the value of the property. The balance would have to be paid by the buyer, as a payment before he draws on the loan amount.  Down payment is known as “Margin Money”.

FCI

Stands for Field Credit Investigation or plain Field Investigation - most financiers appoint an outside agency, who authenticates the identity of the client and confirms his place of residence and office address.  

Floating Rate :

The interest rate on the loan depending on a benchmark rate fixed by the home loan lender. This benchmark rate varies as per the market and the prime lending rate advised by the Reserve Bank of India. This change can happen as frequently as once in three or six months. All banks will not have the same amount of rate change at any given point of time.

If the benchmark falls, you benefit and if it rises you end up paying more. In case of a fall your payments remain the same for every month. The finance company will refund some of your EMI cheques and effectively compensate you by reducing the tenure of the loan. The reverse happens if the floating interest rate on home loan rises,and you might end up giving more cheques as the tenure is increased.

Flat Rate

Is the interest that is charged, expressed as a fixed percentage of the loan amount throughout the tenure of the loan.It is also called fixed rate home loan.

Fixed Obligation to Income Ratio (FOIR).

This is a ratio commonly used by lenders to calculate loan eligibility. This ratio includes all the fixed obligations that you pay every month including all loan EMI paid every month. The Fixed Obligations however, do not include statutory deductions like PF, Profession Tax, etc. and deductions for investment like Voluntary PF, LIC Premium, Recurring deposit, Contribution towards society, etc.  

FSI - Floor Space Index

FSI as it is more popularly known as refers to the ratio of the Built up area of a property to the area of the land on which it is built. An FSI of 2:1 would mean that the total built up area of the building can be equal to twice the area of the land on which it is being built.

Guarantor

The role of a guarantor is commitment by the way of agreeing to the terms and conditions of the loan and bearing liability to the extent of the loan together with the interest and other charges. The guarantor comes into play only when there is a default by the borrower. Usually a guarantor is not required for home loans.

HFI

HFI stands for Housing Financial Institution and covers banks, housing finance companies and other financial institutions that offer Housing Loans.

Installment to Income Ratio (IIR)

This is a ratio commonly used by lenders to calculate loan eligibility. It is similar to the FOIR as detailed above. It is generally expressed as a percentage. This percentage denotes the portion of your monthly installment on your Home Loan. This figure is normally pegged at 40% but can vary on the basis of actual salary details, qualifications, employer / business, years of experience, growth prospects and sources of other income. 

Interest Rate

Rate at which the lenders charge interest for the home loan amount.

Legal Scrutiny Report

The documents which are pertaining to your property needs to be scrutinized by the legal personnel of the housing finance institution to ensure that you are buying a property that is clear and marketable.

Loan to Value (LTV) and Loan to Cost (LCR)

They are terms used by various housing finance institutions to signify the loan amount that a person is eligible for on the total value as well as the total cost of the property. There is a limit on the maximum loan amount that a person can get for a property irrespective of the home loan eligibility. The balance amount  for purchase of the property is to be funded by the customer from his own sources.

Marketable Title

A person is said to have a marketable title only when the title to the property is clear and he/she has the right and capacity to transfer the same.

Market Value

This is the value of the property as per the prevailing market value.

NEAR - Net Effective Annualised Rate

This is the net rate paid by the client after taking into account all discounts, other charges paid, subventions, advance installments and is the rate to be used for evaluation of two or more home loan offers.  

No Objection Certificate (NOC)

This is a document required by all home loan lenders from the concerned authority in cases where you are not the owner of the land in which your property is being built. The authority depends on the type of property.

For example in a  cooperative group housing finance society if the society has been formed and conveyance deed executed. Development authority if the property has been directly allotted by a development authority, etc. However, if the customer is building a property on a plot of land that he owns, a NOC is not be required.  

Obligation

These are the duties that a borrower takes up after signing the housing loan agreement. For Example  keeping up with the schedule of repayment, depositing the post dated cheques periodically and to keep the property free from encumbrance.

Post Dated Cheques – PDC

Cheques issued in favor of the financier for repayment of loan. The customer usually gives cheques with the specified EMI amount for a period in the future. The repayment can be either made through PDC cheques or  through a electronic clearing (ECS) if you maintain a savings/current account with the same bank from whom you have taken the home loan.

Pre EMI

This refers to the payments made by the customer when the loan is partly disbursed. In Home Loans, the disbursement is made as per the stage of construction of the property. When the loan is partly disbursed, the customer cannot start paying the EMI. Instead ends up paying simple interest on the part amount drawn by him at the applicable rate. This is called a Pre EMI.  

Processing Fees

Processing fees is charged at the time of submission of the application form and covers expenses incurred for processing the application form. This fee has to be paid upfront by the customer. The home loan processing fees is usually refundable if the housing finance institution refuses to finance the property based on its appraisal of the customer and the property being financed. In case, the loan has been sanctioned and the  customer does not want to avail of it, then the fees will non- refundable.

Processing Fees is usually charged as a percentage of the loan asked for subject to a specified limit e.g a typical fee structure prevalent today is lower of 0.5% or Rs. 5000.

Prepayment Charge

Usually, banks and housing finance companies do not charge you for prepayments from your own savings. However, if you retire a loan using money borrowed from another finance company, you will have to pay a charge of 1-2% of the loan outstanding. This charge is also referred to as “refinance charges”.

Pre-Sanction Inspection of Property

After the receipt of the loan application,a reprsentative from the housing finance institution conducts an inspection of the property to ascertain the location of the property,verify the technical details of the house and the stage of construction.

Property Tax

This is the tax which is levied by the local authority such as the Municipality of a city to the person who owns the property.

Registration Value

This is the value of the property, which is declared and is registered in the court of law. The duties, charges and taxes are paid by the seller and the buyer on the basis of this value.

Rest

Interest rates are quotes on a daily rest, monthly rest or annual rest basis. The annual rest quote implies that the company gives you the credit for the monthly principal repayments only at the end of each year. The shorter the tenure of the loan, the greater the effective interest rate difference will be.

That's why borrowers should try and get a loan with the highest frequency of rests. Most home loans are available on a monthly rest basis.

Sale Agreement

Sale Agreement is an agreement which is entered in between the buyer and seller of  the property (house/plot of land/commercial establishment like a shop) and which creates a right to obtain a sale deed mentioning the property. Generally it preceedes a sale deed and normally it fixes a time for completion of the sale transaction  as well as payment of earnest money or part payment of purchase consideration.

Sale Deed

This is an instrument in writing which transfers the ownership of the property/properties in exchange for a price paid or considered. This document is required to be registered compulsorily.

Sanction Letter

This is the letter which is sent to the customer to communicate that his loan has been approved and outlines the terms & conditions of the same.

Sanctioned Plan

A drawing of the proposed property (shortlisted for purchase) containing the plans, and details of specifications and area statements on which the sanctioning authorities grant permission to carry out work as regulated in the bye laws.

Stamp Duty

It is the duty/fee/tax payable on the execution of certain documents like transfer of property. This rate varies from state to state and is set by the State Government. The adequacy of stamp duty should be ensured to make a document valid and enforceable.

Statement of Account

The home loan statement of account gives you important details like the interest and principal repaid during the year as well the balance tenure and the principal outstanding. This is very important to have to claim tax exemption for the year as well calculating any charges payable based on the amount of loan outstanding.

Tenure of the Loan

It is the repayment period for the home loan. Normally, loans are given for a period of 2-25 years.