When one sets out to conduct any sort of property transaction, one is confronted by an avalanche of technical jargons related to real estate and home loans. It is imperative that one does get acquainted with these technicalities so as not to be duped by unscrupulous elements. Once one is acquainted with these terms, it would become relatively easy to read between the lines and understand the real meaning behind these complex business phrases. We have put together a glossary of commonly used real estate, home loan and housing finance terms described in layman's language, exclusively for you. Read on to explore the meaning of these popular business jargons.
Home Loan Glossary
Once the loan is issued by the way of sanction letter, the applicant communicates his willingness to accept the loan by way of an acceptance letter. He has to send this within a time frame of 1-3 months from the date of the sanction letter.
Number of EMIs in the form of post dated cheques, paid out in advance at the time of disbursement of loan.
The Allotment Letter contains details regarding the agreed price, payment and construction schedule, house plans, delivery date and builder's liability in case of late completion or problems after possession.
Annual Reducing Balance of the Principal
In an annual "rest", the EMIs 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. Thus 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.
This refers to the plans of the building that is approved by the respective municipal corporation. This is a drawing of the layout of the project and the layout of the flats. This document is an important document as this document can establish any illegal constructions that may have taken place.
Built up Area (BUA)
BUA, over and above the carpet area, would include the space covered by the thickness of the inner and outer walls of the flat. The BUA thus would generally be around 15% more than the carpet area of the flat.
Carpet area may be defined as the area of the flat where a carpet can be laid and thus is the net useable area. Until two decades back flats were sold on this basis. Carpet area is the area from the inner sides of wall to wall. However this concept is rarely used today and as a result, flats today are generally sold on the basis of Built up area and super built up area.
Completion certificate / Occupation Certificate
This is given by the municipal corporation to the developer. It is a very crucial document as this certificate is issued only after the developer completes all the required formalities. Some of these formalities include getting water connection and electricity connection for the project and the construction being completed as per the permissions given in the commencement certificate and the approved plans.
Down Payment/Margin Money
Financiers normally give loans up to 80-85% of the value of the property. The balance would have to be paid by the buyer, as a payment before he draws on the loan amount. This balance amount is the down payment or margin money.
EMI is Equated Monthly Installment. The loan can be repaid through EMIs over the tenure of the loan.
Fixed Rate of Interest
When an applicant opts for a fixed rate of interest, the rate of interest remains fixed over the tenure of the loan. This is an ideal option for situations when one expects the rates of interest to go up in the future.
Floating Rate of Interest
When one opts for a floating rate of interest, the interest rate on the loan may fluctuate depending on the Prime Lending Rate (PLR) fixed by the Reserve Bank. This change can happen as frequently as one in six months. If the PLR falls, the customer benefits and if it rises he suffers. However, in case of a fall the payments remain the same for every month. The finance company will refund some of the EMI cheques and effectively compensate the customer by reducing the tenure of the loan.
Monthly Reducing Balance of the Principal
Monthly Reducing Balance of Principal is same as annual reducing balance 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.
It is an agreement by which the borrower gives the lending institution the right to take possession of the property given as security if the loan is not repaid. Usually all the documents of the property have to be deposited with the HFC.
This is a letter handed over by the developer to the customer stating that the property is complete and ready for occupation. This letter also indicates the final dues payable by the customer before the key is handed over to the customer.
Prepayment means repaying the loan before the tenure is over. Most HFCs charge a prepayment fee that is normally in the range of 1-2% of the pre-paid amount.
Refinance means prepaying an existing higher interest loan by taking a lower interest rate in the wake of falling interest rates. One can do this either from the same HFI or from a different HFI. If one retires a loan using money borrowed from another Finance Company, he will have to pay a refinance charge of 1-2% of the loan outstanding.
Registration of an Agreement
It is always advisable to register the documents at the time of purchase of immovable property. The agreement should be registered with the Sub-registrar of assurances under the provisions of the Indian Registration Act. Stamp duty should be paid prior to the Registration.
The sale deed transfers the ownership of the property/properties in exchange for a price paid or considered. This document is required to be registered compulsorily.
The stamp duty is usually a percentage of the transaction value levied by the state government on every registered sale. The agreement to sell clearly states the stamp duty, which is usually paid by the buyer, and he gets his name registered in the land revenue records. It ranges from 5 per cent of the transaction value to 14 per cent in some states.