Glossary

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A

Amortisation

A systematic process of repaying a home loan through monthly installments that cover both principal and interest. Over time, amortisation gradually reduces the loan balance, leading to full ownership of the property.

Annual Percentage Rate (APR):

The yearly cost of a mortgage, including the interest rate and additional charges. APR helps borrowers assess the true cost of their home loans and enables comparisons across lenders.

Appraisal

A professional assessment of a property’s market value, essential in determining the loan amount in loan-to-value ratios (LTV). Appraisals reduce lender risk and support home loan approvals.

Asset-Liability Management (ALM):

Strategies used by banks to balance assets and liabilities, ensuring stability in home loan interest rates. ALM is key for lenders offering fixed-rate and floating-rate mortgages.

Assumption of Mortgage:

When a borrower transfers an existing mortgage to a new owner. Mortgage assumptions allow the new borrower to inherit favourable loan terms, such as a lower interest rate.

Auction Property:

Properties auctioned due to default can provide buyers with below-market prices. However, auction property purchases require thorough checks, including clear title verification.

B

Bank Guarantee:

A financial guarantee from a bank to cover borrower liabilities if they default. Bank guarantees are common in high-value property transactions to manage risk.

Base Rate:

The minimum lending rate set by the Reserve Bank of India (RBI) that impacts all home loan interest rates, including floating-rate mortgages.

Broker

An intermediary who connects borrowers with lenders, offering guidance on various loan types, including joint home loans and fixed-rate mortgages. Mortgage brokers simplify the home loan process.

Built-Up Area:

The total area covered by a property, including the carpet area, wall thickness, and balcony. Built-up area is a critical metric in Indian real estate.

C

Cap

A limit on the increase of interest in a floating-rate mortgage. Caps provide borrowers with protection from sharp fluctuations in home loan interest rates.

Carpet Area:

The net usable floor area within a property, excluding external spaces. Carpet area is essential for calculating home loan eligibility and the property’s value.

Clear Title:

A title that is free of encumbrances, legal issues, or pending dues. A clear title is necessary for mortgage approvals and loan against property (LAP).

Closing Costs:

Fees paid at the completion of a mortgage, including stamp duty and registration fees. These costs add to the overall expense of owning a property.

Collateral:

An asset, typically the property, pledged to secure a loan. Collateral lowers lender risk, essential in loan against property (LAP) transactions.

Credit Appraisal:

A comprehensive evaluation of a borrower’s creditworthiness. Credit appraisals affect home loan eligibility, interest rates, and approval for joint home loans.

D

Deed:

A legal document transferring property ownership. In home loans, a deed confirms ownership transfer from the seller to the buyer.

Down Payment:

The initial cash contribution made by the borrower toward the property’s price. A higher down payment can lower EMIs and loan-to-value ratio (LTV), often leading to favourable interest rates.

E

Encumbrance Certificate:

A document verifying that a property is free from financial or legal liabilities. Essential for home loan and loan against property (LAP) approvals.

Equity:

The difference between the property’s market value and the outstanding mortgage balance. Equity can increase over time, allowing homeowners to leverage it for a loan against property.

Escrow Account::

A third-party account holding funds for property expenses. Although rare in India, escrow can be used for high-value property transactions.

F

Fixed-Rate Mortgage:

A home loan with a stable interest rate throughout the term, ensuring predictable monthly EMIs for borrowers.

Floating Rate:

A variable interest rate that adjusts based on the RBI’s repo rate. Floating rates impact EMI payments over time.

Foreclosure:

A lender-initiated process where the property is taken over due to borrower default. Foreclosures affect borrower credit scores and future home loan eligibility.

H

Home Loan Eligibility:

The maximum loan amount a borrower qualifies for, based on income, age, and financial stability. High eligibility often leads to better interest rates and loan terms.

I

Interest Rate:

The cost of borrowing on a mortgage. Interest rates can be fixed or floating, directly affecting monthly EMIs and overall loan expenses.

J

Joint Home Loan:

A home loan with multiple borrowers, typically family members, which can enhance loan eligibility and offer tax benefits.

L

Loan Against Property (LAP):

A secured loan where a borrower uses property as collateral. LAP allows homeowners to leverage property equity for personal or business needs.

Loan Agreement:

A legal contract detailing the terms of a home loan, including repayment schedules and interest rates.

Loan-to-Value Ratio (LTV):

The ratio of the loan amount to the appraised property value, indicating risk. A lower LTV is favorable for securing home loans with better terms.

M

Mortgage Insurance:

Insurance protecting lenders if borrowers default on a high LTV loan. This coverage enables higher loan amounts while managing risk.

N

Net Operating Income (NOI):

A measure of a property’s profitability after deducting expenses. NOI is vital for evaluating rental property investments.

Non-Performing Asset (NPA):

A loan considered non-performing if unpaid for over 90 days, impacting a bank’s finances. NPAs can lead to foreclosure or auction of the property.

O

Occupation Certificate (OC):

A legal document certifying that a building complies with regulations and is suitable for occupancy. OCs are required for securing home loans.

P

Pradhan Mantri Awas Yojana (PMAY):

A government scheme providing interest subsidies on home loans for first-time homebuyers, promoting affordable housing.

Pre-Approval:

A lender’s preliminary offer based on a borrower’s finances, allowing them to understand their home loan eligibility and budget.

Pre-EMI:

Interest-only payments made on a partially disbursed loan, often during property construction. Pre-EMI allows lower payments until full EMI begins.

Principal:

A local tax on property ownership, impacting overall costs. Property tax rates vary by location and must be paid annually.

Property Tax:

A local tax on property ownership, impacting overall costs. Property tax rates vary by location and must be paid annually.

R

Refinance:

Replacing an existing loan with a new one, often to secure better interest rates or reduce EMIs. Refinancing can provide significant savings.

Registry Charges:

Fees paid to register property ownership with local authorities, a mandatory step in India’s home loan process.

Repo Rate:

The rate at which the Reserve Bank of India lends to commercial banks. Repo rate changes affect floating-rate mortgages and loan against property costs.

Reverse Mortgage:

A loan product for senior citizens allowing them to convert home equity into cash without selling the property, creating a steady income.

S

Sanction Letter:

An official letter from a lender approving a home loan based on eligibility and terms. It is a critical step in finalizing the mortgage process.

Stamp Duty:

A government tax on property transactions, calculated as a percentage of the property’s market value. Stamp duty must be paid before property registration.

Subvention Scheme:

A payment plan where the developer covers interest during construction, reducing the financial burden on buyers until possession.

Survey Number:

A unique identifier for land parcels, essential for verifying ownership. Survey numbers are widely used in property transactions.

T

Tax Deduction on Home Loan:

Tax benefits on home loan principal and interest under Section 80C and Section 24 of the Income Tax Act, allowing borrowers to reduce tax liabilities.

Title:

The legal right of ownership over a property, verified during a mortgage application. Clear title is crucial for home loan approvals.

U

Underwriting:

The lender’s evaluation of a borrower’s credit profile and property to assess loan risk and eligibility. Underwriting is central to determining home loan approval.

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