Legal Terms in Real Estate -Terminologies & Words(D2)

D2. Home Loans & Mortgage

115. Mortgage

A legal agreement where a bank or other lender loans money at interest in exchange for taking the title of the debtor's property, with the condition that the conveyance becomes void upon the payment of the debt.

115a. Adjustable-Rate Mortgage (ARM)

A type of mortgage where the interest rate can change periodically based on an underlying benchmark interest rate or index. Initial rates are often lower, but there's a risk they can increase in the future.

115b. Fixed-Rate Mortgage

A mortgage where the interest rate remains constant throughout the entire duration of the loan. This provides predictable and stable monthly payments.

115c. Capped Rate

The maximum interest rate that can be charged on a variable or adjustable-rate mortgage.

116. Home Loan

Home loan is the money borrowed from a financial institution to buy, construct, or renovate/repair a house or residential property. The lender will consider the home or property as collateral for the loan.

117. Principal Amount

Principal amount is the original sum of money borrowed in a loan or invested, excluding interest.

118. Down Payment

An initial payment made when buying something on credit, typically a percentage of the total purchase price.

119. Interest Rate

The percentage of a loan amount you'll pay in interest over a year. Interest rates can significantly affect or influence the buyer’s ability to afford a home.

119a. Base Rate

The minimum threshold interest rate set by RBI from 1st July 2010, below which the banks are not usually permitted to lend home loans to borrowers. The base rate includes all the elements of the lending rate, upon which banks add other customer specific charges as considered appropriate to determine their actual lending rates.

119b. Floating Interest Rate

Floating interest rate, also known as variable interest rates, fluctuates periodically over time based on market conditions and the base rate. If the base rate increases, the floating interest rate will also increase. When the floating rate drops, borrowers save money with lower EMI payments.

119c. Fixed Interest Rate

Fixed Interest Rate is a type of interest rate that remains constant for a set period or for the entire term of the loan.

119d. Hybrid Loans or Combination Interest Rates

With a hybrid loan, borrowers can get a combination of fixed and floating interest rates during the loan tenure. They will receive a fixed interest rate for an initial period of time, and after expiry of this time period, the interest rate becomes floating, adjusting periodically for the rest of the loan tenure.

120. Home Loan Eligibility

Criteria set by lenders that a borrower must meet to qualify for a home loan.

121. Home Loan Insurance

Home Loan Insurance covers the borrower and ensures repayment of the outstanding home loan amount in the event of the borrower's demise, ensuring that the family isn't burdened with loan repayment.

122. Equated Monthly Instalment (EMI)

EMI is the fixed monthly payment made towards repaying a loan.

123. Pre-EMI

Pre-EMI is the monthly payment towards the interest of the loan amount drawn (you will not be repaying anything towards the principal amount). You will get the option to pay Pre-EMIs for loans where the property is still under construction.

124. Co-Borrower

A Co-Borrower applies for a loan along with the primary borrower and is equally responsible for a loan or mortgage and its repayments.

125. Guarantor

Guarantor is a person who guarantees to pay back a loan in case the primary borrower defaults or is unable to make repayments.

126. Collateral

Collateral is an asset offered as security for repayment of a loan. In case of non-payments towards the loan, the lender has the option to take control, repossess, or claim ownership of the collateral.

127. Refinancing

Refinancing is a way of replacing an existing loan with a new one, usually with better terms or a lower interest rate. You can refinance a loan, mortgage, or investment.

128. Loan to Value Ratio (LTV)

Loan to Value Ratio (LTV) is the ratio of the loan amount to the appraised or market value of the property or collateral against which the loan is being borrowed. [LTV = Loan Amount ÷ Value of the property]

129. Loan Processing Fee

Loan processing fee is a one-time charge added by the lenders for processing a loan application, which involves some administration costs ranging from 0.5% to 2.5% of the total loan amount.

130. Equity

Equity is the difference between the market value of a property and the amount owed on the mortgage. To calculate your home equity, get an estimate of the current value of your home and subtract the loans you have secured against your house.

131. As-is where-is basis

As-is where-is basis means that you are buying a property in its existing condition, inheriting all the good and bad, physical and legal conditions of the property, with or without encumbrances.

130. Amortisation

Amortisation is the gradual reduction of a loan debt by making regular payments of both principal and interest over a specified duration of time. You can easily create an amortisation schedule or a comprehensive table detailing the basic loan information i.e., loan tenure, number of periodic payments to be made, rate of interest, principal amount, and balance principal.

133. Bridge Loan

Bridge Loan is a short-term loan that provides immediate cash flow for individuals who need immediate funds to purchase a property until a more permanent financing solution can be arranged or while they wait for their home to be sold.

134. Debt-to-income ratio

A ratio used by lenders that compares an individual's monthly debt payment to their overall income [DTI = monthly EMI ÷ gross monthly income]. A good DTI ratio is 36% or lower, up to a maximum of 43%.

135. CIBIL

Credit Information Bureau (India) Limited, an Indian credit information company that maintains records of individuals' loan and credit card bills to determine creditworthiness.

136. Credit History

Credit history is a record of a person's borrowing and repaying habits towards credit cards or other loans, and a record of any unpaid, outstanding loans.

137. Cash Reserves

Cash reserves, or emergency funds, refers to any liquid funds or assets that a borrower has access to, after paying the downpayment and closing costs. This is often considered by lenders during the loan approval process.

138. Foreclosure

Foreclosure is the legal process where the ownership of a property shifts to the lender or bank due to the homeowner's (or borrower's) failure to meet the loan repayment terms.

139. Pre-Approval Letter

Pre-approval letter is a letter from a lender indicating that a borrower qualifies for a certain loan amount based on their financial history, and that the lender is (tentatively) willing to lend the money as loan. However, this does NOT mean a guaranteed loan offer; the lender will thoroughly look into the borrower’s credit history, income, and expenses to make a final decision.

140. Debt Service

The total amount of money required to make the loan repayments (both interest and principal) on an outstanding debt over a period of time.

141. Debt Service Coverage Ratio (DSCR)

The DSCR is calculated by dividing the annual net operating income (NOI) of the property by the debt service (annual debt payments including principal and interest). For example, a DSCR of 1.5 means the NOI must be 1.5 times (or 150%) the amount of the annual loan payments.

Courtesy: ASSURE SHIFT