So many individuals dream of owning their own house someday. However, real estate prices are quite expensive, and most homebuyers need to rely on financial support in order to make their dream of purchasing a property come true. The good thing is that lenders offer various home loan plans, so you can always apply for one to arrange for the required funds. Usually, the repayment tenure provided for a home loan lasts for 20 years, giving an ample amount of time to pay off the loan in monthly instalments.
Now, if you have decided to go for a home loan but are not too familiar with it, a few things need to be understood before going ahead. This is to ensure that you get a good deal from a lender and can pay off the loan without any financial difficulty.
So, take a look at a few terms that you should be aware of when it comes to a home loan:
A home loan is a secured type of loan, which means that a lender would require the borrower to pledge collateral to get the loan. This collateral acts as security for the lender in case the borrower is unable to repay the loan. The property that you are purchasing with the home loan will be the collateral that the lender can use as compensation if the loan is not repaid.
- Down payment
A home loan does not cover the entire cost of the property that you are buying. It can only provide the finances up to 80-90% of the property value depending on the loan amount that you are taking. The remaining amount will need to be covered from personal savings, which is known as the down payment.
- Fixed and floating interest rate
You will have to choose between a fixed and floating interest rate while going for a home loan. A fixed housing loan interest rate does not change and remains the same throughout the tenure of the loan. However, a floating home loan interest rate can fluctuate throughout the loan tenure based on market changes.
- Credit appraisal
Before approving a loan application, every lender checks the applicant’s profile. The reason financial institutions do this is to understand whether the applicant will be able to repay the loan on time. This involves evaluating the applicant’s age, monthly income, existing debt, creditworthiness, and payment history. These factors play an influential role in the applicant’s home loan eligibility. This evaluation process by a lender is called credit appraisal.
After going through these terms, you will be better equipped to speak to a lender and get a good deal. In addition, it is advisable to make use of a home loan EMI calculator, which is an online tool that will help in displaying a loan’s EMIs beforehand. This will help you decide whether to go for the loan or look for a better option.