If you have ever applied for a mortgage loan against property in any bank or financial institutions then you must have had various confusing terms used in the lending industry thrown at you. It can be very difficult for a layman to understand this jargon. We have deciphered these seemingly confusing terms for you –
- ROI – Interest rates are commonly referred to as ROI in banking. ROI is nothing but a interest that is charged by banks for using their funds for a period of time. Loan against property interest rates are mainly of two types – Fixed or reducing. It is common practice in banking to use reducing interest rates in which both principal and interest is paid out simultaneously.
- Mortgage – If you are taking a loan in Delhi then, Mortgage is the property on which you are taking a mortgage loan against property. It is very important for a mortgage to have a clear title with no disputes. These mortgages would include registered properties, GPA properties, lal Dora lands, Builder flats etc.
- LTV – It stands for Loan to value ratio, it is the loan amount that banks are willing to offer to you on your market value of the property. To reduce their risk, banks would offer a lower Loan to value ratio to a customer in case of a default. Usually, banks offer a LTV that can vary from 40% to 80% of market value of the property.
- Processing fee – Banks charges a processing fee for every loan against property application. This processing fee is charged for various operating activities, technical, legal verification of the property. This processing fee varies from bank to bank and is usually a minuscule percentage of the loan against property amount.
- FOIR – FOIR stands for fixed obligations to income ratio. It is one of the most used ratios in mortgage loan against property application. The numerator takes into account all your fixed obligations like EMI on term loan or LAP etc. Statutory deductions like PF and tax on fixed deposits are not factored in. Denominator is made up of gross monthly income. Usually, banks allow FOIR of 30% to 50% which can go up and down depending on income. For higher income, higher FOIR can be taken.
- Other terms – Important terms associated with mortgage loan against property are mentioned below –
- Principal – Amount of the loan that is disbursed to a customer.
- Tenure – Duration of the loan in which it has to be fully repaid.
- EMI – stands for Equated Monthly Installments. This is the amount of repayment that a customer has to pay every month to repay his loan.