Raman recently mortgaged his property to meet some personal expenses. Upon expert financial advice, Raman was going through the Loan Against Property documents, whereby he stumbled upon the following:
“I / We agree that the Postdated cheques / Security cheques are given towards loan repayment/installments of the debt due and payable by me/us to the Bank in terms of the Loan Agreement dated 29 July 2022.”
“In case of change of authorized signatory of the Borrower, we undertake to replace the cheques appropriately and in the event of non-replacement of the cheques before the due dates, we undertake to honor the Postdated Cheques/ Security cheque.”
“The Borrower shall, if so required by the Bank, open saving bank account(s) or other account(s) (hereinafter referred to as “the Drawal Account", which expression shall mean any or each of such account(s), as the context may permit or require) at the branch(es), as may be specified in the Loan Agreement or intimated to the Borrower by the Bank from time to time, for the Bank to disburse the Loan and/or debit all costs, charges, and expenses incurred by the Bank as per the terms of Loan Agreement in respect of the Loan.”
Reading these jargons, Raman broke into a cold sweat, and left him wondering!
We’ve all been in similar situations, left to grapple with tough financial jargons, like Raman. But, in this article, we bring to you an exhaustive list of technical terms that are used across your Loan Against Property process.
Let us get started!
Top Terms to Remember in Loan Against Property
ROI refers to ‘Rate of Interest’. The interest rates range from 8% p.a. however, the rate of interest is subject to respective lender discretion. Thus, we recommend you check the official website of your preferred lender.
A mortgage loan is a secured loan that allows a borrower to avail funds by pledging an asset such as residential or commercial property. However, the lender has the right under SARFEASI ACT, 2022 over the property if the borrower fails to repay the EMI. Usually, in a secured loan, a borrower is offered funds on the basis of the property value or an LTV along with other factors.
LTV or Loan to Value Ratio is the percentage of the property value that a financial institution lends to a borrower. Based on the property's valuation report, this ratio is calculated by dividing the amount you are eligible to borrow by the property's appraised value. Usually, the LTV ratio ranges between 40% and 75%, but lenders such as Godrej Capital offers an LTV up to 90% depending on the cost of property and profile of customer.
Equated Monthly Installment, or EMI as it is commonly known, is a set payment that a borrower makes to the lender each month at a particular date pre-decided during lending the loan. These payments are applied to the principal and interest rate, making it easy to re-pay the borrowed money over a period of time.
FOIR refers to ‘Fixed Obligations to Income Ratio’. Banks and other financial institutions use FOIR statistics to determine a borrower’s Loan Against Property eligibility. Usually, the fixed monthly expenses (barring statutory deductions such as professional tax, provident fund, and investment deductions) are considered to calculate FOIR. Today, FOIR ranges from 50%-80%, however, Godrej Capital offers higher FOIR to enable a customer to be eligible for a higher loan amount.
Collateral is an asset that is hypothecated when taking any Loan
7. Property Title
Property title is in name of the person who is the owner of a particular property or on whose name a particular property is written and is recognized by the documents available for the same.
8. Loan Tenure
This refers to the time a borrower takes to re-pay the entire loan amount in the form of EMIs.
9. Balance Transfer
Balance transfer refers to the borrower transferring the total outstanding loan amount from one lender to the other for a suitable rate of interest or such other factors.
10. Credit Appraisal
A credit assessment refers to a thorough evaluation to determine the applicant’s capacity for repayment. In this assessment, the lender assesses an applicant’s income, occupation status, credit history, and other parameters.
11. Credit Score
A credit score forecasts your capacity to repay a loan on time. It is basically determined by the information on your credit report. Your credit score depends on the number of loans you have, repayment, unpaid debt, bill-paying history, etc.
12. Offer Letter / Sanction Letter
In the context of a loan, an offer letter refers to a lender sanctioning a loan to the borrower with a letter that contains loan terms and conditions. This may also be referred to as a Sanction Letter.
Margin is the difference in loan amount and total property cost.
Disbursement refers to the agreed loan amount being disbursed from the lender’s account to the borrower’s account.
15. ESCROW Account
ESCROW accounts refer to the account in which the funds are held by a third party on behalf of other parties (i.e., lender and borrower) involved in a financing transaction. Funds, money, securities, etc. can be held in an ESCROW account.
16. Post-Dated Cheque
Post-dated cheque refers to writing a cheque for a future date. A financial institution may cash a post-dated cheque in case of default in repayment on the due date of the EMI.
17. Amortization Schedule
An amortization schedule is a detailed table that shows the periodic loan payment. The schedule shows the monthly principal and interest payments that a borrower must make as EMI till the end of the loan term. A borrower can get the amortization table using the Loan Against Property interest rate calculator.
18. Pre-Approved Loan
A pre-approved loan is not different from a regular loan. In this case, the lender offers the loan to the borrower who has previously availed of a loan from the lender and has maintained a solid repayment record. However, as a precautionary measure, the lender thoroughly evaluates the customer’s credit worthiness before making the pre-approved loan offer.
19. Resale Property
When an individual purchases a property and then puts it on sale, the property becomes a resale property.
Insurance is a voluntary risk mitigation device that helps a borrower in various ways, such as securing the asset and helping in paying off the loan liability in an unlikely event.
21. Processing Fees
A processing fee is a one-time non-refundable fee a borrower pays the financial institution when a loan is availed. The lender charges this fee to cover the cost of processing the loan.
22. Rescheduling Charges
Rescheduling charges are levied when a borrower requests revision in the original Loan Against Property terms and conditions. Usually, under the rescheduling arrangements, the loan’s repayment tenure is revised.
23. CERSAI Charges
CERSAI refers to ‘Central Registry of Securitization Asset Reconstruction and Security Interest of India. This is a government-mandated fee that is levied to protect the interest of financial institutions.
24. Legal Charges
Legal charges are those charges that a borrower bears when the lender hires legal experts to understand the valuation of the subject property, validation of documents, etc.
With this, we are confident that you’d be able to better understand your loan journey and documents. We recommend always keeping this document handy and of course, at all times, we suggest due diligence before applying for Loan Against Property. And if you are interested in knowing more about Loan Against Property, you can visit our website or just read this article.
After all, small steps towards financial literacy go a long way!
Godrej Capital through its subsidiaries, Godrej Housing Finance and Godrej Finance, offers products such as Home Loans, Loans Against Property, Balance Transfers, and many more. To know more about our offering, click here.
Disclaimer: The names used in this article are fictitious and are used for representational purposes only.
The contents of this article are for information purposes only. For more details, please refer to the product or service document and/ or connect with our customer representative before making any financial decision. The information is subject to update, completion, revision and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its affiliates to any requirements. Godrej Capital or its affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.