If you are thinking of taking a home loan, be aware of certain important terms before taking the plunge.

EMI

Equated Monthly Instalment. This is the instalment payable every month and is a fixed amount. The EMI is broken up into principal and interest.

PEMI

The disbursal of a home loan is made according to the completion stage of the property. When your loan is partly disbursed, you cannot start paying your EMI. Instead, you pay simple interest on the part amount drawn by you at the rate that is applicable to you. This is called PEMI.

Fixed ROI

Fixed ROI stands for the Fixed Rate of Interest. This means that the rate of interest remains unchanged through the entire tenure of the loan. It remains Fixed, irrespective of the drop in rates of interest in the market.

Important terms to keep in mind

Floating ROI

The Floating Rate of Interest is one that fluctuates according to the market lending rate. This comes with a little risk as in case the lending rates go up, the loan bearer will have to pay more than the amount set aside for loan payment per month.

PF

When you fill in your home loan application form, there is a fees charged at the time of submission of the application form that covers expenses incurred for processing the application form. This is called the processing fees (PF) and has to be paid upfront by the customer.

IIR

The Instalment to Income Ratio (IIR) denotes the portion of your monthly instalment on your home loan. Very commonly used by Banks/ HFIs to calculate your loan eligibility, IIR is generally expressed as a percentage. Normally pegged at 40%, the IIR figure can vary on the basis of actual salary details, qualifications, employer / business, years of experience, growth prospects and sources of other income.

Some more loan related terms

IC

In case the customer delays the payment of the monthly instalment, a collection team is sent to the customer’s house to recover the money. The expenses incurred on such occasions are called Incidental Charges (IC)

.LTV/ LCR

There is a limit on the maximum loan amount that a person can get for a property irrespective of the loan eligibility. LTV stands for the Loan to Value ratio while LCR stands for the Loan to Cost ratio. Banks/ HFIs use this to signify the loan amount that a person is eligible for on the total cost of the property.

Margin

Under a home loan Bank/ HFIs fund only around 80% to 85% of the cost of the house. The remaining 20% to 15% has to be borne by the customer himself. This amount paid by the customer out of his own pocket is called the Margin or also the Own Contribution towards the cost of the house. The Margin amount is subject to the eligibility of the individual.