Home Loan Terms and Definitions

In a real estate transaction where a property is the insurance for property loan. The mortgagee has the right to take possession of property if borrower fails to repay.

This ratio is used by the lender to assess the borrower’s ability to repay the borrowed amount.

It is an estimate of a property’s current value which is based on preceding sales information of similar property and how the value of the properly will differ from its surrounding.

It is the maximum interest that can be charged by banks on adjustable rate mortgage.

When an asset is kept as a security against loan provided, which can be waived off if failed to repay the debt.

When a loan is repaid before the borrowed period, certain charged are applied on the borrower.  

A fee that is charged by the lender to the borrower to acquire the loan in addition to the interest rate.

A partial payment made at the time of purchase, with the balance to be paid later

The date on which the principal balance of a loan, bond or other financial instrument becomes due and payable.

A person or a thing which is used as a guarantee

Also called as fixed interest rate. This is a very simple method and hence is preferred by many. The percentage of the rate is calculated on the principal amount of the loan, and this is done for the entire time period for which the loan is taken. The interest figure along with the capital is then distributed over the entire repayment period to arrive at the amount of equated monthly installment (EMI). Though this method is very simple, its major drawback is that the impact of the repayment of the capital is not considered at all in the entire interest working.

The interest rate is charged only on the outstanding amount of a loan. In this case the interest rate is higher than the flat rate. Every month when the EMI results in a payment the capital portion is deducted from the total loan taken and then the remaining amount is charged an interest at the applicable rate. In this way, there is a gradual reduction of the capital and consequently of the base on which the entire interest working is done.

Arrangement fee is the cost of setting up a loan and is payable in advance.