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Loan Dictionary

Acceptance Letter :
The letter that a borrower eagerly waits to fill up. Once the loan is issued by the 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 :
Pay back time! Number of equated installments in the form of post dated cheques, paid out in advance at the time of disbursement of loan.
Administrative Fee :
Unavoidable pay out by which bank/HFC can make money of you. A one time fee; generally non-refundable; payable before the loan is disbursed. Rates may vary from 1-2% of the loan amount.
Close Relatives :
As per the section 6 of the company act,a close relative is one who is acceptable as a guarantor is any of the following : Father,Mother(including step mother),son(including step son),son's wife,daughter(including step daughter),son's son,son's son's wife,son's daughter,son's daughter's husband,daughter's husband,daughter's son,daughter's son's wife,daughter's daughter,daughter's daughter's husband,brother(including step brother),brother's wife,sister(including step sister),wife/husband and sisiter's husband.However they should comply with the age and other norms of the company to be considered as guarantors.
Commitment Fee :
Much like other commitments, which if one screws up one gets the short end of the straw. It is an interest, which is charged if you do not draw the sanctioned loan amount within a period of 6-7 months. The interest rate is usually about 1-2%.
Credit Appraisal :
The IMPORTANT PEOPLE! Every Housing Finance Company (HFC) 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 loan approval.
Documentation :
Documentation is the papers to be signed in connection with the loan at the HFC,i.e.the loan papers.
Down Payment :
Wonder why it's called down payment when it has to be paid up-front? Housing Finance companies 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.
Encumbrance :
Document to ward of the nightmare of property litigation. It records details of transfer of ownership of a property in succession right to the current owner. It shows the date, the names of the parties involving the amount of consideration, the extent and schedule of the property. This certificate can be obtained from the sub registrars' office for a payment of fee. This certificate is also useful in establishing the events as to how and when the present owner came into possession of the property.
Equated Monthly Instalment(EMI) :
Loan repayments are usually in Equal Monthly Installments over the tenure of the loan. Some banks also offer a Variable Installment Scheme in the beginning of the loan period. This is beneficial for those individuals who are trying to maximise their tax breaks in the initial years and expect future tax breaks to fall
Exposure/Extent of loan :
The loan amount as against the value of the asset/product. Try avoiding an indecent exposure, it's better for your health as well!
Floating Rate :
Here the interest rate on the loan depending on the Prime Lending Rate (PLR) fixed by the Reserve Bank. This change can happen as frequently as one in six months. If the PLR falls, you benefit and if it rises... However, 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 PLR rises, much to your disadvantage. Whoever said that this is a floating rate has got be joking. It's best called the sink or ride the crest rate, wouldn't you agree?
Flat Rate :
Percentage representation of the amount of annual interest on the total loan amount.
Interest Tax :
Housing Finance companies have to pay a tax on the interest income they receive. One should check whether the interest rates quoted include interest tax or not. This tax is normally about 2% of the interset rates charged. Interest tax has been abolished from April,2000 .
Interest Rate :
Rate at which the lenders charge interest for the loan amount.
IRR :
Internal Rate of Return is the rate at which the lender accounts for interest.
Legal Scrutiny Report :
The documents which are pertaining to your property needs to be scrutnised by the legal personnel of the HFC to ensure that you are buying a property that is clear and marketeable.
License for Construction :
This is basically permission to construct or an authorization in writing issued along with the loan application.
Margin Amount :
Margin Amount is the difference between the total cost of the project and the loan amount sanctioned.This money has to be invested by the borrower prior to the release of the loan amount.
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.
Obligation :
The borrower in terms of the agrrement will be obligated to keep up the schedule of repayment to deposit the post dated cheques periodically and to keep the property free from encumbrance.
Prepayment Charges :
Most HFCs charge some fee for pre-payment of loan before the tenure is over.Your earning capacity normally increases with your age and a pre-payment fee can be a big cost.The fee is normally in the range of 1-2% of the pre-paid amount.
Pre-Sanction Inspection of Property :
After the receipt of the loan application,a loan officer from the HFC 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 Corporation,Municipality etc. to the person in whose name the property stands.
Refinance Charge :
H
ome 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 refinance charge of 1-2% of the loan outstanding.
Registration Value :
This is the value of the property at which the property is registered.
Role of Guarantor :
The role of a guarantor is commitment by the way of agreeing to the terms and conditions of the loan and liable to the extent of the loan/liability together with the interest and other charges.
Rest :
A contradictory word here as it does nothing but increase your tension. 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. Such loans are therefore more expensive than a monthly/daily rest loan. The shorter the tenure of the loan, the greater the effective interest rate difference will be.
Sale Agreement :
Sale Agreement is an agreement which is entered in between the parties dealing with the property and which creates a right to obtain a sale deed mentioning the property.Generally it preceeds a sale deed and normally it fixes a time for completion,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 communicates the sanctioned terms and conditions once the loan is approved.
Sanctioned Plan :
A drawing containing the plans,section of elevations of areas along with detailed schedules,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 payable on the different instruments / documents as per the prescribed rate.The adequacy of stamp duty should be ensured to make a document valid and enforceable.
Statement of Account :
The statement indicating the outstanding loan amount,the amount paid by the borrower,the appropriations made towards the interest and principal,etc. at the end of the financial year.
Tenure of the Loan :
Normally, loans are given for a period of 1-15 years. Some companies also give loans upto 20 years at an additional interest cost of 0.25% -0.5%.
By vayaM CS