When one sets out to conduct any sort of
property transaction, one is confronted by an avalanche of
technical jargons related to real estate and home loans. It is
imperative that one does get acquainted with these technicalities
so as not to be duped by unscrupulous elements. We have put
together a glossary of commonly used real estate, home loan and
housing finance terms described in layman's language:
Acceptance Letter: Once the loan is issued by the way of
sanction letter, the applicant communicates his willingness to
accept the loan by way of an acceptance letter. He has to send
this within a time frame of 1-3 months from the date of the
Advanced EMI: Number of EMIs in the form of post dated
cheques, paid out in advance at the time of disbursement of loan.
Allotment Letter: The Allotment Letter contains details
regarding the agreed price, payment and construction schedule,
house plans, delivery date and builder's liability in case of late
completion or problems after possession.
Annual Reducing Balance of the Principal: In an annual
"rest", the EMIs are calculated on an annual basis. The
interest is calculated on the outstanding principal at the
beginning of every year. Once the interest is calculated at the
rate charged to the customer for the entire year it is deducted
from the EMIs received during the year. The balance EMI is taken
as principal repaid during the year and this is deducted from the
opening balance of principal of the current year to arrive at the
opening balance of principal for the next year. Thus the component
of interest in the EMI is higher for the first few years and later
on the component of principal increases and the interest keeps
reducing year after year.
Approved Plans: This refers to the plans of the building
that is approved by the respective municipal corporation. This is
a drawing of the layout of the project and the layout of the
flats. This document is an important document as this document can
establish any illegal constructions that may have taken place.
Built up Area (BUA): BUA, over and above the carpet area,
would include the space covered by the thickness of the inner and
outer walls of the flat. The BUA thus would generally be around
15% more than the carpet area of the flat.
Carpet Area: Carpet area may be defined as the area of the
flat where a carpet can be laid and thus is the net useable area.
Until two decades back flats were sold on this basis. Carpet area
is the area from the inner sides of wall to wall. However this
concept is rarely used today and as a result, flats today are
generally sold on the basis of Built up area and super built up
Completion certificate / Occupation Certificate: This is
given by the municipal corporation to the developer. It is a very
crucial document as this certificate is issued only after the
developer completes all the required formalities. Some of these
formalities include getting water connection and electricity
connection for the project and the construction being completed as
per the permissions given in the commencement certificate and the
Down Payment/Margin Money: Financiers normally give loans
up to 80-85% of the value of the property. The balance would have
to be paid by the buyer, as a payment before he draws on the loan
amount. This balance amount is the down payment or margin money.
EMI: EMI is Equated Monthly Installment. The loan can be
repaid through EMIs over the tenure of the loan.
Fixed Rate of Interest: When an applicant opts for a fixed
rate of interest, the rate of interest remains fixed over the
tenure of the loan. This is an ideal option for situations when
one expects the rates of interest to go up in the future.
Floating Rate of Interest: When one opts for a floating
rate of interest, the interest rate on the loan may fluctuate
depending on the Prime Lending Rate (PLR) fixed by the Reserve
Bank. This change can happen as frequently as one in six months.
If the PLR falls, the customer benefits and if it rises he
suffers. However, in case of a fall the payments remain the same
for every month. The finance company will refund some of the EMI
cheques and effectively compensate the customer by reducing the
tenure of the loan.
Monthly Reducing Balance of the Principal: Monthly Reducing
Balance of Principal is same as annual reducing balance except
that the balance is calculated on a monthly basis and the EMI is
broken up every month to arrive at the opening balance of
principal for the next month.
Mortgage: It is an agreement by which the borrower gives
the lending institution the right to take possession of the
property given as security if the loan is not repaid. Usually all
the documents of the property have to be deposited with the HFC.
Possession letter: This is a letter handed over by the
developer to the customer stating that the property is complete
and ready for occupation. This letter also indicates the final
dues payable by the customer before the key is handed over to the
Prepayment: Prepayment means repaying the loan before the
tenure is over. Most HFCs charge a prepayment fee that is normally
in the range of 1-2% of the pre-paid amount.
Refinance: Refinance means prepaying an existing higher
interest loan by taking a lower interest rate in the wake of
falling interest rates. One can do this either from the same HFI
or from a different HFI. If one retires a loan using money
borrowed from another Finance Company, he will have to pay a
refinance charge of 1-2% of the loan outstanding.
Registration of an Agreement: It is always advisable to
register the documents at the time of purchase of immovable
property. The agreement should be registered with the
Sub-registrar of assurances under the provisions of the Indian
Registration Act. Stamp duty should be paid prior to the
Sale Deed: The sale deed transfers the ownership of the
property/properties in exchange for a price paid or considered.
This document is required to be registered compulsorily.
Stamp Duty: The stamp duty is usually a percentage of the
transaction value levied by the state government on every
registered sale. The agreement to sell clearly states the stamp
duty, which is usually paid by the buyer, and he gets his name
registered in the land revenue records. It ranges from 5 per cent
of the transaction value to 14 per cent in some states.