Acceleration Clause
A proviso
in an agreement that confers upon the owner the right, while keeping the
agreement alive, to recover from the defaulting hirer the entire unpaid balance
of the loan amount. In such case, on default in payment of any one installment,
the full outstanding balance of the price shall immediately become due.
Acceptance Letter
The letter submitted by the loan applicant
indicating his willingness to accept the loan as per the terms of issue
mentioned in the sanction letter. This letter is normally sent out within a
particular time frame varying between 1-3 months from the date of the sanction
letter.
Adjustable Rate Home Loan
This is a loan where the rate
of interest is linked to the Prime Lending Rate (PLR) and the gains/ losses
arising out of fluctuation in the interest rate are borne by the borrower. The
rate on loan is generally revised at regular intervals. If there is a change in
RPLR (Retail Prime Lending Rate), although the EMI (Equated monthly installment)
on the home loan disbursed to the customer will not change, the tenure will
increase or decrease depending on whether the interest rates rose or fell from
their previous level.
Agreement to Sell
A preliminary
agreement, secured by an earnest money deposit, through which the buyer offers
to purchase the property.
Amortization: Amortization is the method or the
calculation by way of which the entire principal / loan amount is paid through
the tenure of the loan. This helps a customer to know what his outstanding
principal is at any point in time.
Amortization Period
This
refers to the period of time for which you will owe interest and principal to
your lender - the bank or HFC (housing finance company).
Amortization
Schedule
This is a schedule that details the principal and interest
payments and the amount outstanding at any given point during the amortization
period.
Annual Rests
In an annual rest the EMIs (equated
monthly installments) are calculated on an annual basis. The interest is
calculated on the outstanding principal at the beginning of every year. Once the
interest is calculated at the rate charged to the customer for the entire year
it is deducted from the EMIs received during the year. The balance EMI is taken
as principal repaid during the year and this is deducted from the opening
balance of principal of the current year to arrive at the opening balance of
principal for the next year. Under this method, typically the component of
interest in the EMI is higher for the first few years and later on the component
of principal increases and the interest keeps reducing year after year. In other
words, the interest in the EMI will keep reducing year after year and the
principal component in the EMI keeps increasing. This is commonly known as
Annual Reducing Balance of the principal amount lent to
you.
Application
This refers to the entire process of applying
for a loan starting with the submission of the application form used to apply
for a loan, which contains relevant information about you to enable the HFC or
bank to process your loan.
Appraisal
An estimate of the value
of the property/ asset, made by a qualified professional called an "appraiser".
A credit appraisal is carried out by your HFC or to determine your repayment
capacity on the basis of which the loan amount and terms will be
decided.
Appraised Value
An opinion of a property's fair market
value, given by an appraiser, whose job it is to evaluate such
things.
Appreciation
An increase in the value of a property due
to changes in market conditions or for other reasons.
Asset
An
immovable or movable property or anything with a rupee value that you own, which
can used as a security against which credit can be offered.
Balloon Mortgage
Also known as Payment
mortgage, this is usually a short-term fixed-rate loan, which involves small
payments for a certain period of time, and one large payment for the remaining
amount of the principal at a time specified in the
contract.
Bonafide
In good faith, real, not
fraudulent.
Borrower
One who applies for and receives a loan
in the form of a mortgage, with the intention of repaying the loan in full. The
borrower is also known as the mortgagor.
Breach
A violation of
any legal obligation.
Broker
An Individual who arranges deals
or negotiating contracts on behalf of a client. Mortgage brokers usually charge
a fee to the loan applicant or receive a commission for their services from the
loan provider. Property or Real Estate brokers helps clients find a house and
charge a fee (usually a percentage) for their services.
Bounce
charges
These charges are levied by the HFC (housing finance company) if
your cheques get dishonoured due to some reason. '
Capital
Expenditure
The cost of an improvement made either to lengthen the useful
life of a property or to add value to it. It's a fancy term for the money you
spend for improvements (see capital improvement).
Capital
Improvement
Any structure which is a permanent improvement to the
property.
Carpet area
Carpet area is that covered area of all
usable rooms at any floor level. This is worked out as the plinth area minus the
area occupied by the walls.
City survey numbers
This is a
number given to plots of lands falling within the purview of urban development
plans of the Town Planning Authority.
Chain of Title
The
history of all of the documents that transfer title to a piece of real
estate.
Clear title
It is a title, which is free from any
reasonable doubt and also free from all encumbrances or
liens.
Closing
Also called settlement, this refers to the
meeting between the buyer, seller and lender or their agents at which the
property and funds legally change hands.
Closing
Costs
Expenses incurred by buyers and sellers in transferring ownership
of a property. These may include registration charges, the costs of obtaining
title insurance, transfer fees, etc. They can often total several, or many,
thousands of rupees.
Close relatives
As per section 6 of the
Companies Act, a close relative acceptable as 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 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
sister's husband. However for consideration of these relatives as guarantors for
the loan they should comply with the age and other norms of the company.
Co - applicant
As a customer you have an option of having a co
- applicant to your loan. The co - applicant cannot be a minor and most HFCs
allow for only brother - brother, parent - son and husband - wife combination
for a co - applicant.
Collateral
An asset (such as a car or a
home) that can be used to guarantee the repayment of a loan. The borrower risks
losing that asset pledged as collateral if the loan amount is not repaid in a
timely fashion.
Collection
The process of forcing a borrower to
pay what he owes on a loan and, if required, to proceed with foreclosure. This
happens in case of the borrower not making his payments in a timely
fashion.
Common areas
It is actually the covered area of the
common spaces and areas meant for use by the occupants of the building. These
areas may include staircase, lifts, lobbies, ducts for sanitation, electrical
and air conditioning areas etc. This area is generally divided proportionately
in relation to the size of the apartment and charged accordingly.
Compound Interest
Interest charged or paid on the principal
and the accumulated interest, unlike Simple Interest, which is paid only the
principal.
Construction Loan
Also known as interim loan, this
provides the funds necessary to pay for the construction of buildings or homes.
The lender advances funds to the builder at periodic intervals as the work
progresses.
Contingency
A specified stipulation that must be
met before a contract is legally binding. The two most common contingencies in
home purchasing are that:
1. The house must pass the home inspection, and
2. The borrower must get the loan.
Contract Sale (or
Deed)
A contract between a buyer and a seller, which conveys title after
certain conditions have been met. It is a form of installment
sale.
Conveyance Deed
A written document that transfers title
to the property.
Cooperative (co-op)
The residents of this type
of housing complex own shares in the cooperative corporation that owns the
property, and each has the right to occupy a specific dwelling. They don't
actually own the dwelling, only own shares in the corporation.
Credit
Limit
The maximum amount that you can borrow.
Credit
Appraisal/Personal Interview
An appraisal conducted by the HFC's panel
of credit appraisal officers who process the loan application. They take into
account factors like income of the applicants, number of dependents, monthly
expenditure, repayment capacity, employment history, number of years of service
left over and other such factors, which affect the credit rating of the
borrower. Proof of income will also be verified for the purpose of approval of
the loan. The loan officer will also request applicants to the branch for a
credit interview.
Credit Report
A report documenting the credit
history and current status of a borrower's credit standing. If there are debts
you owe which you never paid, or times in which you've been delinquent in
paying, these items will presumably show up on your credit report and can hurt
your chances of getting approved for a loan.
Default
Failure to
meet legal obligations in a contract, in this case, failure to make the monthly
payments on a mortgage. If this happens, the borrower can end up losing the
property.
Delinquency
Failure to make payments on time is
called delinquency. This can lead to
fore-closure.
Depreciation
A decline in the value of property
or asset over time as opposed to appreciation
Documentation
The papers to be signed in connection with the loan at the HFC, i.e.,
the loan papers, is called documentation. The section on basics of housing loans
deals with documentation.
Down Payment
Money paid to bridge
the difference between the purchase price and the mortgage amount. Down payments
usually are 10-20% of the sales price on conventional loans.
Earnest Money
Money given by a buyer to a
seller as part payment of the purchase price, in order to bind a transaction or
to assure payment.
Eligibility
This is the loan amount that you
are eligible to based on your repayment capacity. Your eligibility depends on
the norms set by the HFCs. Typically, the eligibility computed would be lower of
the Loan to value ratio (LTV), Installment to Income Ratio (IIR) and Fixed
Obligation to Income Ratio (FOIR) as per the norms of the HFC.
Equated
Monthly Installment (EMI)
This is the installment amount the borrower has
to make towards repayment of his loan. The EMI comprises of both the principal
and interest.
HFCs charge an Equated Monthly Installment from the borrower
that is calculated on the basis of loan amount and the interest rate charged for
the same. Repayment by way of EMI generally commences from the month following
the month in which one takes disbursement. It can be calculated either on the
basis of annual reducing rest, monthly rest or daily rest.
In the annual
rest, interest is calculated on an annual basis on the outstanding at the
beginning of the year. In this case EMI becomes 1/12th the Equated annual
installment.
In the monthly rest, principal repayments are credited at
the end of every month and interest is calculated on the outstanding principal
at the end of every month.
In the daily reducing principal repayments are
credited at the end of the day an installment is paid.
Encumbrance
This records details of transfer of ownership of a property in
succession upto 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 registrar's office for a payment
of fee from any previous year till date. This certificate is also useful in
establishing the events as to how and when the present owner came into
possession of the property.
Encroachment
An improvement that
intrudes illegally on someone else's property.
Equitable
Mortgage
In this case, the customer has to just pledge the documents with
the HFC and he can get a loan against them. He is not required to get the
mortgage registered.
First Mortgage
The mortgage, which is the
primary lien against a property.
Fixed rate of interest
An
option where the rate of interest remains fixed over the tenure of the loan
after the final disbursement has been made. This is an ideal option for
situations when you expect the rates of interest to go up in the future. Hence
the fluctuation in the rates does not affect you adversely. In case of Home
Loans where the disbursement takes place as per the stages of construction of
the property, the interest rate in the market may change during this period.
Irrespective of the fact that you may either be under the fixed rate or the
variable rate scheme, the new rate of interest would apply to the extent of
undisbursed portion of your loan amount. The rate of interest remains fixed at
the final weighted average rate at which the loan is disbursed.
Foreclosure
Also known as a repossession of property, this is
a legal process by which the lender or the seller forces a sale of a mortgaged
property because the borrower has not met the terms of the
mortgage.
Gross Monthly Income (GMI)
The Gross Monthly Income
of an individual as considered by an HFC to calculate his loan eligibility. For
a salaried customer GMI would indicate the Monthly Income on his salary slip
including any Fixed Income generated regularly from a fixed source. For
Self-employed professionals who are practicing on their own, GMI would reflect
their Gross Professional Receipts while for self-employed non-professionals; GMI
stands for Net profits that they earn from their
business.
Guarantee
A promise by one party to pay a debt or
perform an obligation contracted by another if the original party fails to pay
or perform according to a contract. The party that promises to do so is called
guarantor.
Hidden Charges
The effective rate of interest might
work out to be different from the rate announced by Housing Finance Companies.
This could be due to several costs that are not apparent, up-front. Some of
these are processing or administrative charges that may be payable by the loan
applicant during the processing of the loan. Administrative charges levied, are
generally taken as a percentage of the loan amount, subject to a maximum and
minimum amount.
Some HFCs also levy pre payment charges to dissuade
borrowers from pre-paying their loans when interest rates are on a decline.
Some HFCs follow annual rest for taking into account the reduced
principal whereas other Housing Finance Companies follow the monthly rest in
which case, the customer benefits.
HFCs may levy a commitment charge on
the un-drawn amount of the loan a few months from the date of sanction till the
borrower withdraws the funds. This charge covers this cost of liquidity they
have promised to maintain to lend you the funds when you desire.
Finally
the borrower might be asked to bear the insurance premium expenses of the
property being funded.
Therefore the interest charges are not the only
outflow that the borrower has to shell out for a housing loan.
There are
other charges also which have to be taken into consideration by the borrower,
which ultimately affects the effective rate of interest charged to the borrower.
The borrower should do a comparative analysis of the different
schemes.
IIR (Income to Installment Ratio)
This ratio signifies
the percentage of the income that can be set aside for repayment of the loan
under the assumption that 50-60% of the income is required by the person for his
own sustenance.
In Principal Approval
A written agreement from
the lender to offer a specified interest rate if the mortgage goes to closing
within a set period of time, (usually 3 months) subject to the legal and
technical clearances and the creation of a valid and equitable mortgage over the
property.
Inspection of property
Inspection of property
intended for purchase/construction is done at regular intervals, both before and
after disbursement of the loan. Post sanction inspection of the property is done
at each stage of the disbursement to ensure that the borrower invests the margin
money and the progress of work is as per schedule.
Insurance
(Property)
A form of insurance in which the insurance company protects
the insured property against specified losses, such as fire, windstorm and the
like.
Interest
The amount of money, expressed as a percentage
of the principal, charged for the use of the money borrowed.
Khata,
Chitti, Adangal
These are basic documents called by different names in
different places indicating the ownership of property as entered in the register
of the Government authorities.
Lease
A Contract by which the owner of an asset
lets it out for use to another for a specified time on payment of a specified
amount called rental.
Legal scrutiny report
This refers to
the report prepared by the by legal personnel of the HFC after they have
scrutinized the legal documentation (property documents) to ensure that you are
buying a property that is clear and marketable. This is one of the first
criteria to take care of, so that the transaction is proper and the property can
be passed onto your legal heirs.
Lending Rate
The rate at which
the financier charges interest on the amount financed.
License for
construction
An authorization in writing issued along with the
sanctioned plan that permits the builder to construct as per the
plan.
Lien
A lien is a claim upon a piece of property for the
payment or satisfaction of a debt or obligation. A clause of Acceptance of Lien
states that you have accepted to mortgage your property and can not sell it to
any one else without the consent of the HFC.
Loan Against Property
When the borrower takes a loan against existing property, this is
considered as a loan against property. In this case, the existing property is
mortgaged with the lender. The rate of interest for loan against property is
generally higher than the interest on home loan as the end use of the funds
cannot be monitored.
Late Charge
This is a charge payable by
the borrower as penalty for making late payments. Since this could be a hidden
charge and not mentioned up front, make sure you know when you would incur such
a charge.
Loan Tenure
The time duration for which loan has
been provided.
LTV (Loan to Value Ratio)
This ratio denotes
the percentage of value of the property that is financed by the company. This
ratio usually ranges between 80-85% of the property.
Margin
amount
The difference in the total cost of the property and the loan
amount sanctioned is the margin amount. This money has to be invested by the
borrower of the property prior to the release of the loan amount in case of
construction of a house.
In case it is for purchase of a ready house, the
loan amount is released on the day of registration of the property and the
margin money has to be invested by the borrower prior to the release. In case of
purchase of flats also, the release will be made only on investment of the
margin money by the borrower.
Marketable title
When the title
to the property is clear and the person has the right and capacity to transfer
the same then he is said to have a marketable title.
Market value
It is the value of the property as per the prevailing market rates.
Maturity
The date on which the principal balance of a loan is
due and payable.
Monthly Rests
This is also called Monthly
Reducing Balance of principal. The calculation in this method remains the same
as above except that the balance is calculated on a monthly basis and the EMI is
broken up every month to arrive at the opening balance of principal for the next
month.
Mortgage
A legal contract that is registered against
the title to a property in order to guarantee that a loan will be repaid. This
is a form of hypothecation of the property to the HFC where, if the borrower
defaults in paying the installment on the home loan and he has filed for
bankruptcy, the HFC's claims will lie in precedence to other creditors' charges.
Mortgage by way of Memorandum of Entry
In this case, you have
to sign a declaration stating that you are mortgaging the property to the HFC.
This declaration is then entered into the Memorandum of Entry of Mortgage that
can be enforced in case you default in the payment of installments.
Mortgagee
The HFC or bank that provides credit or finance
against the title to the property.
Mortgagor
The borrower or
homeowner who applies for a loan against the title to the property to guarantee
that the loan will be repaid.
Obligation of the borrower
The
borrower in terms of the agreement 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.
Origination Fee
The fee
charged by a lender to prepare loan documents, make credit checks, inspect and
sometimes appraise a property, usually computed as a percentage of the face
value of the loan. It is also known as mortgage origination fee.
Penal interest
Interest charged on the installments by the
lender if the installments are not received as per the repayment terms by the
end of the month.
Personal Guarantor
Some HFCs insist that you
provide for 1 or 2 Personal Guarantors. The guarantor is required to meet the
norms specified by the HFC, which is similar to the norms of an
applicant
Plinth area
Area measured externally of the whole
building. This includes balconies, however this will not include common areas in
apartment blocks/commercial buildings and spaces.
Power of
attorney
It is an instrument empowering a specified person or persons to
act for and in the name of the person executing it. The person for whom the act
is done or who is so represented is called principal. The person who is so
authorized to do or represent is called agent. It may be either notarized or
registered depending on the transaction.
Pre - approval
In a
Home Loan, you have a facility to apply for a loan before you decide on the
property. The loan is sanctioned however, disbursement takes place only after
the property is selected and is technically and legally cleared. Such cases are
called Pre - approvals as the loan is approved before the customer selects a
property. This helps you to decide on a budget to buy a property of your
choice.
Pre-EMI
The EMI for the loan will begin after the loan
has been disbursed in full. Till such time the borrower has to pay the interest
for the loan. The amount of interest payable every month is called
pre-EMI.
Prepayment
It is the amount paid towards principal
ahead of the prescribed repayment schedule. The benefit of interest is given to
the party in such cases as per the norms of the company.
Pre-sanction
inspection of property
Immediately on receipt of the application of the
loan application, a loan officer from the HFC will conduct an inspection of the
property to ascertain the location of the property, verify the technical details
of the house like structural stability etc and the stage of construction, if the
loan is for construction.
Property tax
This is the tax levied
on the property by the local authority such as Corporation, Municipality, etc to
the person in whose name the property stands.
Post-Dated Cheques
Housing Finance Companies follow the policy of asking the borrower for
12 or 36 Post Dated Cheques which the HFC presents at the end of every month
thus relieving itself of the botheration of collecting cheques at the end of
every month.
Principal
The amount of debt, not counting
interest, left on a loan.
Refinance / Balance transfer
If you
are an existing home loan customer and you have availed of the loan at a higher
ROI then you have the option to switch to a lower rate of interest. You could do
this either from the same HFI or from a different HFI. Kindly go through the
Switch product for more details. Obtaining a new mortgage loan on a property
already owned, often to replace existing loans on the property.
Registered Mortgage
In this case, the borrower is required to
get the mortgage in favour of the company registered by paying the registration
charges.
Retail Prime Lending Rate
It is the rate being
offered to the prime borrower (retail) by the HFC. HFC cannot lend at a rate
lower than this rate.
Registered Owner
Name of the person in
whose name the property is registered.
Registration value
It
is the value of the property at which the property is registered. Generally the
rate for the value for registration is fixed for specific areas by the
authorities in many places.
Rentals
The repayment amounts paid
in a lease contract.
Repayment
The payment of EMI or pre-EMI
as applicable is called as repayment of the loan. In case of NRIs, this amount
should come from Non-Resident (External) Account/Non-Resident (Ordinary) Account
in India.
Returns
Yields or Profits made in a financial
transaction
Role of guarantor
Commitment by 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.
Risk
Chance or danger of a loss of capital and or interest in
financial transaction.
Sale agreement
An agreement entered into
between the parties for dealing with the property which creates a right to
obtain a sale deed mentioning the property. Normally it fixes a time for
completion, payment of earnest money or part payment of purchase consideration.
Generally this document precedes a sale deed and in such cases does not
require registration and will also not confer any charge or right on the
property. However in some states the sale agreement itself will be registered
and will act as a sale deed.
Sale Certificate
Certificate
issued by the dealer on the sale of a car, which is required to be submitted to
the RTO for registration.
Sale deed
It is an instrument in
writing which transfers the ownership of the property or properties in exchange
for a price paid/consideration. This is a document that requires to be
registered compulsorily.
Sanction letter
Once the loan is
approved, a letter communicating the sanction terms and conditions will be
issued to the borrower.
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 byelaws.
Security
The asset that can be mortgaged with the HFC against
which a loan is sanctioned. Typically, the security is the house for which a
loan is given. At times it can also be security by way of Fixed deposits, Bonds,
Shares, etc. and personal guarantees.
Stamp duty
It is the
duty/fee payable on the different instruments/documents as per the prescribed
rate. This differs from state to state. 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 interest and principal,
etc. at the end of the financial year.
Submission of loan application
form
The loan application form asks for information of the borrower, his
family, details of his income and expenditure and his financial history, cost of
the property, availability of resources, details of personal finances including
bank account numbers, details of property proposed to be purchased etc.
Super built-up areas
Plinth area + proportionate share of
'Common Areas'.
Tenure
The term used to represent the number
of years for which the loan is given. The loan amount gets amortized over the
period of the loan.
Title
It is the right and interest over
the property evidencing the ownership.
Title Deed
A
statement, which confirms that the current owner legally holds the title to the
house.
Title Search
An examination of municipal records to
determine the legal ownership of property. Usually is performed by a title
company
Urban land ceiling and regulation
The Urban Land
(Ceiling & Regulation) Act 1976 for the imposition of a ceiling on vacant
land in urban agglomeration, for the acquisition of such loan in excess of
ceiling limit, to regulate the construction.
Weighted Average Rate of
Interest
In case of Home Loans where the disbursement takes place as per
the stages of construction of the property, the interest rate in the market may
change during this period.
Irrespective of the fact that you may either be
under the fixed rate or the variable rate scheme, the new rate of interest would
apply to the extent of undisbursed portion of your loan amount. The final rate
of interest that would be applicable to your loan would be an average of the
different rates at which your loan has been
disbursed.
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