Know Everything about Home Loan Key Terms

Every year thousands of people apply for a home loan. But, only a few do their due diligence before applying for a loan; they don’t understand the meaning of various technical terms in the loan contract. Read on to know about the important home loan terms.


For many Indians, owning a home is one of their biggest dreams. Buying a house is considered as a landmark event; it not only assures that you have a roof over your head but also indicates financial security. It is an asset that stays with for a long time, and it can even be passed onto your children and thereby secure their financial future. But, the process of buying a house is not as easy as it may seem.

Not many people can afford to buy a house with their savings, and they invariably rely on getting a home loan for funds. So, if you are looking to apply for a home loan online, it is paramount that you take your time to understand how the loan works, and know the meaning of various home loan-related terms.

Some of the important home loan terms you must be aware of are discussed below:


One of the most important aspects of a home loan is the EMI (Equated Monthly Instalment). It is the amount that you repay to the lender in monthly instalments. The EMI amount includes both the principal amount and the interest component, and the lender calculates the amount before sanctioning the loan based on the loan duration, the amount borrowed and the interest rate. You must pay the EMI through the loan duration or until you repay the full amount.

Offer Letter

After the lender verifies your home loan application form, they will send you a confirmation letter or offer letter to acknowledge that you are eligible to avail the loan. Typically, the offer letter contains important details like the amount sanction, the duration of the loan, the applicable interest rate, and other terms and conditions.

The letter is usually valid for six months. This means after you review the offer, you can either accept the offer within six months to proceed further or you can reject the offer.

Post-dated cheque

As the name suggests, a post-dated cheque is issued for a future date. When you apply for a home loan, the lender may require you to issue a post-dated cheque towards EMI repayment. These cheques cannot be present ahead of time.

Down payment

Another important home loan-related term that you ought to know. When you apply for a home loan, the lenders do not finance the full value of the property; the maximum loan you can get is 80% of the property’s value. The remaining 20% amount must be paid from your pocket. This is called down payment. 

So, before you apply for a home loan, make sure that you have sufficient funds at hand to pay the down payment. Experts recommend paying a higher down payment so that you can borrow a lesser amount, and subsequently, the repayment will be easier.

Loan Disbursement 

The final step in the home loan application process is releasing the sanctioned amount. Generally, if you have applied for a home purchase loan, the lenders disburse the entire amount in a single payment. But, if you have applied for a home construction loan, the amount will be disbursed in phases after each level of construction is completed.

Pre-approved property

When you are looking for the best home loan offers, you may often come across the term, pre-approved property. Generally, the builders get a pre-approval from the lending institutions for their properties. This is called pre-approved property. If the property that you want to buy is pre-approved by a certain lender, you can apply for a loan with the same lender as the process can be completed faster.

Final Word

Apart from these terms, there are many other home loan-related terminologies that you must know to make an informed borrowing decision.



Leave a Comment