As clarified from the name, the home equity loan is the loan obtained from either the bank or another financial institution to purchase a house. For many of us, buying a home, by borrowing money from the bank, is a long-term investment. That is why; it becomes more important for us to be aware of all the know-how of buying a home through a home equity loan company.
As you hold the responsibility of obtaining loans on your shoulders, you need to be aware of all the terms, at least important ones, or jargon related to the bank or the loans. Are you wondering where to find all the important financial terms? Don’t worry! Keep on reading.
- EMI: You borrow money. You finance it all back. That’s the truth. Right? But, you don’t return the money in the same way, and you don’t return the same amount you borrowed. You finance it back in the form of installments, and the money you return is the sum of principal and interest, and that’s what we call it EMI, where EMI stands for Equated Monthly Installments.
Based on the lender’s decision, the EMIs can be given to the borrower for 15-20 months. However, the borrower can pre-close the loan by making a bulk payment. It is recommended to use only 20% to 25% of the saved money for the home equity loan in Surrey and leave the rest for emergencies and future requirements.
- Down payment or margin: It’s important to be aware of the fact that for your home equity loan, banks will never offer you the 100% financing. You’ll be offered only 80% of the financing, and you’ll have to arrange the other 20% of the money immediately- that’s what your down payment or the margin is.
Let’s take an example. You want your bank to finance you with 10 million. You’ll only be offered with 8 million and you have to pay the other 2 million on the spot.
- Types of rate-of-interest: There are two types of rates of interest – fixed rate of interest and floating rate of interest.
If you go with a fixed rate of interest, the EMI will remain unchanged and you’ll have to pay the same higher amount every month along with all the installments.
On the other hand, if you go with the floating rate of interest, the EMI will change with the market conditions and can go low as much as possible. Note that the floating rate of interest is totally dependent on market volatility.
- Pre-approved property: You apply for a home equity loan, and you’ll get an approval from the bank. That’s it? Well, no! That’s not how the procedure goes. First, the bank will do its sanity check.
The buyer should be aware of the fact that whether the property is pre–approved by the lender or not. It’s also important to note that not considering pre-approved properties are 100% safe for the investment.
It’s recommended to take some piece of advice from the legal advisor while taking out the loan. He will help you get a clear picture that the property papers have clear titles.
- Sanction letter: The confirmation letter, you get, stating you are eligible for a loan is called the sanction letter. Know that the sanction letter is only the confirmation that you are eligible, and it doesn’t promise that the loan amount will be disbursed to you.
