Know Home Loan Terminology


When you apply for a home loan, you may come across several legal terms. As a first-time borrower, it can be hard to know the meaning of such terms and its impact. To help to be more informed, we list down a few important home loan terminologies.

Applying for a home loan is one of the best ways to get the funds for buying your dream home. Today, many lenders in India offer home loans at a competitive interest rate. But, the process of applying for a home loan is not as easy as it may seem. Before you start applying for a home loan, you must take your time to do your research about home loan and understand the associated terms.

Some of the common home loan terminologies that you ought to know are discussed below:

Home purchase/construction loan

The most common type of home loan availed in India, home purchase loan helps you get funds for buying a new flat from the builder from another owner. On the other hand, the home construction loan allows you to get funds for constructing your own house on the piece of land that you own. When you apply for a home construction loan, the lenders typically disburse the funds in phases at different levels of construction.


EMI is the acronym for Equated Monthly Instalments. When you avail a home loan, you can repay the amount in small instalments known as EMI. The EMI amount consists of both the principal amount and the interest component, and it is usually pre-calculated by the lender based on the interest rate and the loan tenure. You must continue to repay the EMIs for the entire loan term or until you repay the full amount.


Interest rate is an integral part of the home loan. It is the amount that you must pay to the lender over and above the principal amount (the amount you borrow). There are two types of home loan interest rates – fixed interest rate and floating interest rate.

In a fixed interest rate loan, the interest remains the same throughout the loan term. The fixed interest rate is ideal for the meticulous budget planner. But, you must know that home loans with fixed interest tend to be more expensive than the floating interest in the long run.

In floating interest home loans, the interest rate varies or fluctuates as per the existing market conditions. Experts suggest that the floating interest rates are generally cheaper than fixed interest rate loans.

Pre-approved property

Many lending institutions have a list of pre-approved properties from various authentic and trustworthy builders that are legally verified on different parameters. By choosing a pre-approved property, you can be assured that the property has a clear title and you get quick approval from the lenders.

Offer letter

Once your home loan application is verified and approved by the lender, they will send you an offer letter stating that you are eligible to avail the loan. The letter contains the following loan-related details:

  • The loan amount (Sanctioned amount)
  • Rate of interest
  • Type of interest (fixed or flexible)
  • Loan duration
  • Other terms and conditions

Amortisation schedule

Not many home loan borrowers understand the importance of an amortisation schedule. It refers to a detailed table of the loan payment. It allows you to know the important loan-related details like the principal amount you have paid so far, the outstanding amount, the number of EMIs paid till date, the interest charged in your EMI, etc.

Loan to Value ratio

Loan to value ratio, which is commonly referred to as LTC, signifies the total value of the property to loan amount sanctioned ratio. For example, if you avail a loan of Rs. 75 lakhs and the value of the property that you want to buy is Rs. 1 crore, then the LTC is 75%.


If you want to close the loan account before the stipulated loan term, you can opt for a pre-closure or foreclosure.

Final Word

Knowing the home loan-related terms will help you make informed borrowing decisions and avoid legal hassles in the future.



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