According to the reports of a leading market research organisation, India’s home loan market is likely to register a 22% year-on-year growth during FY 201-26. There are a few factors that have helped foster this growth, among which the lowering of the repo rate and subsequent drop in the home loan interest rates have been the most noted.

Resultantly, there has been a noticeable increase in housing loan applications in recent months. However, if you are planning to avail one, it is ideal to familiarise yourself with the associated terminologies to understand loan terms without any difficulty.

Top housing loan terms to be aware of:

Here are some notable terms that one should keep in mind while applying for a home loan –

Loan-to-value ratio

Also known as the LTV ratio, this particular term represents the highest loan amount that one can avail against the value of the chosen property. Usually, lenders have a predefined LTV ratio in place; for instance, you have shortlisted a property with a market price of Rs.1 crore, and your choice of lender is Bajaj Finserv Limited. In that case, you can avail up to 85%, i.e. Rs.85 lakh, as a home loan.

Margin

Taking a cue from the previous example, if you have secured an Rs.85 lakh home loan from your lender of choice, the remaining amount, i.e. Rs.15 lakh, you will need to arrange by yourself. This remaining value or amount is known as margin. However, this terminology is not a popular one; it is more commonly referred to as the down payment amount.

Credit appraisal

Credit appraisal is the process where financial institutions go through the personal details of a housing loan applicant. They check age, nature of work, qualification, income etc., before approving a credit application. They will also consider the current credit profile of a borrower and if he/she is servicing any loan currently.

Based on these factors, lenders will decide whether to accept a home loan application alongside the loan amount.

Interest rate

Even though the interest rate is a common term, it has sub-types that everyone should know about. Primarily, there are two sub-types, fixed and floating. Leading HFCs like the Bajaj housing interest rate come in both variants.

However, individuals should be aware of the implication of each rate on their loan repayment to choose between floating and fixed interest rates.

Post-dated cheques

Also known as PDCs, these cheques are issued in the name of a home loan provider. Typically, individuals need to provide them in advance, and creditors will encash them on EMI dates.

Offer letter

Better known as a sanction letter, financial institutions send this letter to home loan applicants stating that their credit application has been considered. This letter typically contains the following information –

• Loan quantum
• Rate of interest and type
• EMI
• Loan tenor
• Terms and conditions

A point to note here is that offer letters are only valid for six months, and applicants need to complete the formalities within that period.

Amortisation schedule

While applying for a Bajaj Finserv housing loan online, or any other home loan for that matter, individuals need to access the loan amortisation schedule. This table or list contains a detailed break-up of the loan repayment, and it presents a clear bifurcation of principal amount and total interest payment. Moreover, it contains a gradual progression of the loan and how these components vary from start to finish. Hence, this schedule imparts better decision-making power to aspiring homebuyers.

Pre-approved offers

Pre-approved offers are extended by financial institutions for eligible customers. This facility allows such individuals to skip the hassle of documentation and verification and avail a loan faster. It is possible due to the already established working relationship between the lender and a customer. These offers are applicable to various financial products, including home loans and loans against property. Borrowers can check their pre-approved offer by submitting their contact details.

Housing loans ease the process of becoming a homeowner. Along with being aware of the terminologies associated with this credit option, one should know the factors that can affect their home loan eligibility and work accordingly to eliminate such issues.