Glossary of Property Loan terms

Loan

A loan is a credit facility provided by the lender to the borrower. Some banks call this a ‘demand’ loan, which means it can be called back at any time. Some others call it a term loan. Loans can be in the single name of the borrower or in the joint names of the beneficiaries. In the case of joint loans, all the parties are equally liable for repayment. Legally, the lender can demand repayment from either one or all of the borrowers, singly or together.

Document

While the term can mean the title deeds, loan document means the agreement detailing all terms and conditions.

Margin

It is the contribution of the borrower/s towards the cost of the project. It may also mean down payment in the case of purchase of a house or flat.

EMI

Equated Monthly Instalment is the amount the borrower has to pay every month towards repayment of principal and interest.

Period of loan

It is the number of years for which the loan is sanctioned, which can go up to 25-30 years in the case of a housing loan.

Interest

It is the percentage of interest chargeable on the loan, worked out on an annual basis.

Fixed rate loan

It is the interest fixed at a particular percentage for the entire period of the loan. Fixed does not mean that the rate will remain the same always, it will be subject to changes in the rate fixed by the central bank from time to time or the Prime Lending Rate (PLR) of the lender, with changes from time to time.

Floating rate loan

It means that the rate will change according to forward and backward movement of interest rates as a result of changes in cost of funds, policy changes etc. This is advantageous to the borrower, especially when the interest rates move downwards.

Equitable mortgage

It is created by deposit of title deeds charging the security to the lender, instead of a registered mortgage created on appropriate stamp paper and registered with the Sub-Registrar.

Reset

Reset clause included in the loan agreement is meant to give the banker the right to change the rate of interest, may be once or twice during the pendency of the loan.

Processing charge

It is the fee payable to the bank for examination of the papers and completion of documentation before releasing the loan applied for.

Inspection charges

This is the fee recovered by the bank for conducting periodical visits to verify the security charged to the loan, which invariably includes the house constructed or purchased. This can be the transport charges or ‘bata’ paid to the inspecting official.

Foreclosure

It means advance repayment of the loan, before the expiry of the period for which the loan is sanctioned.

Accelerated repayment

When a borrower repays more than the EMI fixed, it is called accelerated repayment. The intention is to clear the loan earlier than originally stipulated or to neutralise the effect of rise in interest rate, whereby the burden of repayment is reduced in terms of period or quantum.

Commitment charge

The bank normally sets apart funds equivalent to the loan sanctioned without using it for other lending. When the loan is not utilised, the bank insists on compensating it by paying a certain commission, which is called commitment charge.

Take over

When the lending bank takes over an outstanding loan with another bank or a private lender, it is called take over of the existing liability.

Compound interest

When interest debited to the account is not paid, it is automatically added to the principal and further interest is charged, which is called ‘compound interest.’

Overdue

A loan or instalment is overdue when it is not repaid on the due date.

N.P.A

A non-performing asset is a loan wherein the interest or principal is not paid within the stipulated time.

Call up

When the overdue loan is demanded to be repaid in full, the action is termed ‘call up.’

Suit filed account

When an account is overdue and called up, the next step is to file a suit in a civil court or when the necessary application is filed before the Debt Recovery Tribunal, it is called suit filed account.

The above may not be exhaustive and there can be some more terms/nomenclatures in use depending on the procedure and practice followed by different lending institutions.

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