Home Loan Terms Every Home Aspirer Should Know

home loan terms

Home Loan Terms Every Home Aspirer Should Know

Home loans can be for the purposes of buying a property or real estate or to raise money for whatever purpose. If you are planning to consider this type of loan, you must know everything about it to avoid getting lost before applying for the loan, during the life of the loan, and even after the end of the loan. Home Loan Terms 

True that the financial institution will explain to you everything about the loan, but as a borrower and someone who aspires to apply for one, you need to know the basic terms mostly being used with this type of loan.

To start with, here are the terms that you will mostly encounter:


EMI stands for Equated Monthly Installment. This is the amount that the borrower needs to pay the financial institution or bank on a monthly basis until the loan is paid in full. The principal amount of the loan plus the interest will be divided depending on the loan’s tenure, and the number of months until the entire loan is repaid.

The interest component of EMI can be higher during the start of the loan and will be gradually reduced with every payment made.

EMI will remain constant from start to end of the loan, but the proportion of the interest and principal components will change from time to time within the duration of the loan.


Margin is the amount the borrower is required to pay as a down payment. When buying a property, the amount of the margin can be a portion of the total value of the property. The margin should be financed by the borrower using their own money. This can range between ten to twenty-five percent.

Credit Appraisal

Lenders will request an appraisal of the property during the home loan application. This is to assess the current value of the home to ensure that the money that the borrower will borrow is equal to or less than that. This activity is performed to protect lenders from risks of credit default.

Loan Disbursement

Loan disbursement is the final step in the process of a home loan. Once the borrower agrees to take the loan and furnish all necessary requirements, the lender will start to process the disbursement. The lender has the option to disburse the entire loan amount in one go or divide it accordingly. The disbursement of the loan may depend on the agreement between the lender and the borrower or the policy being followed by the lender.

Pre-approved Property

This is the initial process of the home loan. This qualifies a home buyer to loan a property. Pre-approval means that the lender already agrees to lend the borrower a specific amount of money to buy a property. But of course, the loan is not valid and final until the underwriting approval.

Fixed and Floating Rate of Interest

The main difference between the two is that a fixed loan has a fixed interest rate for the entire duration of the loan whereas the floating rate may fluctuate depending on factors, such as the current economy’s status.  

Post-dated Cheques

Issuing post-dated cheques is most of the time required for the lender’s protection. These cheques are collected in advance or before the money is disbursed.

Resale Property

Resale property is a property that was once purchased and is now being sold by the initial owner. If this is the type of property you are planning to take, you may be required to pay a certain down payment which is most of the time 20% of the total market value of the property.

Foreclosure or Pre-closure

If you failed to pay a month or two on your existing home loan, the financial institution may send you a default notice, which signifies the start of pre-closure. If you do not take action immediately, the home will be foreclosed and the ownership of the mortgaged house will be transferred to the institution even if you are close to finishing the loan term.


A property will be used as collateral to get loan approval. Collateral is the lender’s security blanket in case the loan amount is not fulfilled in full. Home Loan Terms

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