Understanding home loans and their terminologies in india
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Understanding home loans and their terminologies in india

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Many a builder projects are launched on a regular basis and most of us dream of owning a property in some of these projects such as AIPL The Peaceful Homes, Experion The Heartsong, Parx Laureate ...

Many a builder projects are launched on a regular basis and most of us dream of owning a property in some of these projects such as AIPL The Peaceful Homes, Experion The Heartsong, Parx Laureate Noida, BCC Bharat City, Orris Carnation Residency etc.

This is where home loan plays an important role in our purchase decision. There are many home loan providers in the market to make your dream come true. But before you opt for any home loan provider, you need to consider various factors related to the property you are interested in buying and also be familiar with the salient features offered by the home loan provider.

As a prospective borrower, you should be generally aware about the various terms used in the housing finance field.

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Understanding home loans and their terminologies in india Document Transcript

  • 1. Understanding Home Loans and their terminologies in IndiaAggregated and Prepared by: www.nirrtigo.comGreen Realtech Projects Pvt. LtdReal Estate Projects India | User Ratings & Reviews | Common Cause | Discussions | Research PageMany a builder projects are launched on a regular basis and most of us dream of owning aproperty in some of these projects such as AIPL The Peaceful Homes, Experion The Heartsong,Parx Laureate Noida, BCC Bharat City, Orris Carnation Residency etc.This is where home loan plays an important role in our purchase decision. There are manyhome loan providers in the market to make your dream come true. But before you opt for anyhome loan provider, you need to consider various factors related to the property you areinterested in buying and also be familiar with the salient features offered by the home loanprovider.As a prospective borrower, you should be generally aware about the various terms used in thehousing finance field. There are different types of loans available in market to meet your needs,including:Types of Home Loans:1. Home Purchase Loans:These are the basic form of home loans used for purchasing a home.2. Home Improvement Loans:These loans are given for implementing repair works and renovations in a home that hasalready been purchased and/or occupied by the customer.3. Home Construction Loans:These loans are available for the construction of a new home.4. Home Extension Loans:These loans are given for expanding or extending an existing home - for example, addition of anextra floor or room, etc.5. Home Conversion Loans:These loans are available for those who have financed the present home with a home loan andwish to purchase and move to another home for which some extra funds are required. Throughhome conversion loan, the existing loan is transferred to the new loan account including theextra amount required, eliminating the need for pre-payment of the previous loan.
  • 2. Understanding Home Loans and their terminologies in IndiaAggregated and Prepared by: www.nirrtigo.comGreen Realtech Projects Pvt. LtdReal Estate Projects India | User Ratings & Reviews | Common Cause | Discussions | Research Page6. Land Purchase Loans:These loans are available for purchasing land for constructing a house.7. Bridge Loans:These loans are designed for people who wish to sell the existing home and purchase anotherone. The bridge loans help finance the new home, until a buyer is found for the existing homeand sale proceeds are realized.
  • 3. Understanding Home Loans and their terminologies in IndiaAggregated and Prepared by: www.nirrtigo.comGreen Realtech Projects Pvt. LtdReal Estate Projects India | User Ratings & Reviews | Common Cause | Discussions | Research PageComparative study of loan options:You should compare various loan options on the basis of the following parameters so that youcan arrive at an informed decision:1. Purpose:First analyze the purpose of taking loan. As explained above, banks/HFCs offer loans forpurchasing a home from builder/seller, for construction of own house or for the extension of anexisting house. You should focus on your purpose of taking loan while comparing the otherfactors.2. Loan Amount:Generally, the maximum loan amount is limited to 80% to 85% of the cost of your home orextension. The balance amount or the down payment is required to be arranged by you fromyour savings. Depending on how much down payment you can arrange, you may select thebank/HFC that can meet your balance requirement of funds.3. Documents required:You need to submit relevant documents to the loan provider for getting the loan. Thedocumentation varies for different categories - such as businessmen, salaried employees andprofessionals. And although the basic documents required are same by various banks/HFCs, thecomplete list can vary from bank to bank based on what category you fall in. So, consider therequired paperwork formalities while choosing a loan provider.4. Prepayment charges:Prepayment is the extra repayment, partially or fully, of the loan capital in addition to theEquated Monthly Installment (EMI), prior to the maturity of the loan. Prepayment reduces theinterest burden on a housing loan and also number of EMIs. Banks/HFCs normally imposeprepayment charges that vary from lender to lender depending on the type of loan. Some HFIsdo not levy prepayment charges on variable rate loans. Fixed rate loans, however, attractprepayment charges usually in the range of 1% to 2% percent of the amount prepaid. Somebanks/HFCs do not levy prepayment charge in case the amount prepaid is from borrowers ownearnings and not refinanced by another bank/HFC. So, choose a bank that offers a prepaymentclause with minimum consequence.
  • 4. Understanding Home Loans and their terminologies in IndiaAggregated and Prepared by: www.nirrtigo.comGreen Realtech Projects Pvt. LtdReal Estate Projects India | User Ratings & Reviews | Common Cause | Discussions | Research Page5. Security:Security refers to an asset provided by a borrower to the lender while taking a loan. The lendercan sell or convert this asset to his/her use if the borrower fails to repay the loan in full. Beforefinalizing a bank/HFC, analyze the terms and conditions stipulated by various lenders andchoose the one with favorable clause.6. Loan Term:Banks/HFCs follow different policies for different loan terms. So, first decide whether you wantto take a long term or a short term loan, and then choose the lender that offers you the bestoption as per your needs.7. Rate of Interest:Interest rates vary from lender to lender. So, you must compare the interest rates offered byvarious banks and choose the lender that offers you best deal.8. Insurance:Some home loan providers team up with life insurance players to give you the benefit ofinsuring your home loan when you take a loan. It is advisable to go with a lender that providesyou the home loan insurance benefit - so that you get peace of mind.9. Processing & Administrative Fees:The processing & administrative fee ranges between 0.5-2% of the home loan amount. While itmay seem like a small amount, it can add a considerable amount to your home loan cost. So,choose the bank that offers you the lowest or nil processing & administrative fees.
  • 5. Understanding Home Loans and their terminologies in IndiaAggregated and Prepared by: www.nirrtigo.comGreen Realtech Projects Pvt. LtdReal Estate Projects India | User Ratings & Reviews | Common Cause | Discussions | Research PageWhich is the best loan option?To choose the best loan option is a challenge in present day home loan market. A soundanalysis is the key mantra for selection of best available home loan option as per yourrequirement. It is advisable to keep the above said key points in mind while finalizing yourhome loan provider and to minimize home loan related tensions. After you have zeroed in onthe loan provider, submit a formal loan application along with supporting documents to theloan provider. Here are a few additional tips while getting a loan:1. Get a pre-approval letter:This gives you a substantial leverage as you are then seen as a serious buyer by the seller of theproperty. Also, having the loan approval letter in your hand will set a limit to the amount ofmoney you can commit to a property. This will help in identifying the right property.2. Bargain for a lower rate of interest:Housing finance institutions will reduce their `rack rates for customers with a good creditrecord. A bargain deal will easily fetch a home loan at somewhat lower rate (at times you canget a discount of as high as 0.50%). Here again, get a confirmation of the rate (and for how longit will remain fixed) via a letter.3. Watch out for predatory lending:Do NOT include false information on your home loan application to get quick approval. Also,do not borrow more money than you need or can afford.Source: National Housing Bank
  • 6. Understanding Home Loans and their terminologies in IndiaAggregated and Prepared by: www.nirrtigo.comGreen Realtech Projects Pvt. LtdReal Estate Projects India | User Ratings & Reviews | Common Cause | Discussions | Research PageAbout NirrtiGoNirrtiGo is owned and founded by Green Realtech Projects Pvt. Ltd.NirrtiGo is an online real estate platform to find, discuss, review, rate,and track real estate & property in India.