We can need a loan at any point of time and for any reason. These reasons can be professional or personal but at some point of time we always come across when we find a need of urgent funds and this can easily be sorted with loans. With an added advantage we get all the information on internet related to any topic or issue. But there are few terms or terminology that seems to be very simple, with informal meaning of words and phrases. The specific meaning for these terms depends on how and where they are used because the industry in which they are used controls the meaning of the particular context. These terms might have different meanings in real estate or other related contexts. At Mudra Homes we try to provide you with all information related to financial. The following terms that are used in loans and lending are described to aware you with more information.
Application form is a form by which the borrower submits its requirement along with all the personal details with the Bank/ NBFC. It is a permission to further process the formalities regarding the loan.
ADJUSTABLE RATE MORTGAGE (ARM)
ARM is a mortgage in which the interest rate is adjusted periodically depending on the pre defined time frame.
Amortized loans are the loans that are repaid with regular payments to cover both interest and principal.
The value given by the qualified expert appointed by the Bank/ NBFC based on market conditions and other causes.
Anything that holds a monetary value and being owned. Assets involve properties, stocks, MF’s or bank accounts.
A non collectable and worthless amount carried by the creditor.
Balance Transfer is done to avail the same loan with different lender with new interest rate, loan amount and terms and conditions.
As the name suggest in this type of loan the EMI increases like a balloon with loan term.
A finance that is expected to be repaid earlier unlike the long term loans.
A person who works as a mediator between the two parties and helps to negotiate the terms between them. An individual who is into the business of assisting in the arrangement of funds or negotiating terms for the clients and does not loan the amount itself.
In this type of loan, the borrower is asked to deposit a certain amount after a certain period of time.
The money and the properties used in the transactions of the business.
An investment done to improve the useful life of current asset.
A ratio used to determine the value of the income deriving properties. The cap rate is calculated by dividing the net operating income by the sales price of the property. It is represented in percentage.
Cash flow is calculated when the debt payments are deducted from net operating income.
The expenses bear by the borrower to complete the loan transaction. Legal search, insurance, processing fees and other charges are included in the closing costs.
Assets that kept as a security with the Bank/ NBFC to secure the repayment of the loan.
COMBINED LOAN TO VALUE (CLTV)
When the property’s appraise value is divided by the unpaid principal is said to be the combined loan to value.
Also known as agreement between the borrower and the lender. A commitment letter is a formal letter that states the agreed terms and conditions
Its short term loan used to finance the cost of construction. This loan at times is directly given to the builder on regular intervals the work progresses.
Co-signer is a person who willingly signs the loan obligation with the borrower and takes the responsibility in case the main applicant fails to repay the loan. Co-signer or co-borrower has to go through the same process as the main applicant.
Credit history is the report that shows all the current and fully paid debts. Credit history helps the lender to judge the creditworthiness of the borrower and if the borrower is capable of repaying the loan on time or not.
Credit report is a document issued based on the credit history.
A credit line is a loan that allows the revolving of the funds. Funds once borrowed are repaid and can ve borrowed again without applying for the loan. Generally, the credit limit is set and the available money can be used at any point of time. Payment is done for the used amount. It is somehow similar to credit card except it uses cheques to access the funds. For the investors it is an inexpensive and efficient tool.
An entity that permits the borrower to borrower the money and repay in future.
The one who borrows money from Banks/ NBFC’s
Debt ratio is calculated to estimate the total monthly payments with gross monthly income. Payment towards food, entertainment, medical and other utilities are excluded from the calculation.
DEBT COVERAGE RATIO (DCR)
DSCR is the ability of the borrower to pay the monthly payments. The total net income is divided by the debt payments. Higher the ratio the better.
Though, the specific differs from loan to loan, but the basic is when the borrower fails to repay the EMI’s for the certain number of days or failed to abide any other term & conditions of the promissory note.
This refers when the borrower is unable to make payments on time. This might lead to foreclosure of the loan. unlike default the situation of delinquency arises when the very first payment is missed.
Decrease in the value of the property causes the depreciation.
After the complete process of the loan, the amount which the borrower receive from the lenders is said to be disbursed.
1 point equals to 1% of the loan amount.
When the portion of the purchase price of any asset is paid by the buyer other than the funds provided by the lender.
The act of reviewing, verifying and checking the facts and the issues before processing the loan process.
DEBT BURDEN RATIO (DBR)
DBR is an equation to understand the ability of the applicant of due payments.
This is an account from where the funds are disbursed for specific reasons. These accounts are mostly used to pay in advance for taxes and insurance premiums by the borrower.
A fixed asset is a tangible property which is used in business to generate income. This can be a property, plant or an equipment.
FIXED RATE LOAN
The rate of interest that remains fixed for the complete life of the loan.
FLOATING RATE LOAN
During the loan term if the rate of interest keeps changing in regular intervals, it is said to be a loan with floating rate of interest.
FOIR is a financial tool used by the banks/nbfc to determine the eligibility of the borrower.
Forbearance is an agreement between the borrower and the lender to delay the situation of foreclosure.
Foreclosure is a legal proceeding in which the lender recovers the balance amount of the loan from the borrower by forcing the sale of asset.
GROSS MONTHLY INCOME
The total income derived from the business or the service without deducting the tax and other expenses.
HOME EQUITY LOAN
A type f loan where the borrower uses the home (asset) as a security against the loan and the property value is determined by the valuer.
Interest is the extra amount paid by the borrower in lieu of using the borrowed money.
Interest rate is the rate of interest paid for the principal amount being borrowed from the Bank/ NBFC.
Cash or any other assets that can be converted to cash with a little impact on the value. Money market instruments or the government bonds are readily liquidated.
Loan agreement is a promissory note that clearly states the borrowed amount, rate of interest, tenor and other terms and conditions.
Loan consolidation is done to collect or group many loans into one to reduce the debt liability.
A loan package is a loan which is used to buy both real property and personal property. Loan for buying a new home and purchasing interiors for it comes in a loan package.
LOAN TO VALUE
The ratio of the value of the property and the loan amount.
The difference between the actual price of the property and the loan amount.
A loan borrowed against the real estate property by the borrower.
The entity that lends money to purchase a piece of real estate property.
Negative amortization is an increase in the principal balance of a loan caused by a failure to make payments that cover the interest due. The remaining amount of interest payable is added to the loan’s principal. For example, if the broken up interest payment on a loan is Rs.100000/- and a Rs. 80000/- payment is allowed contractually, Rs. 20000/- is added to the loan’s principal balance.
NET OPERATING INCOME
Net Operating Income is a before-tax figure which excludes principal and interest payments on loans, capital expenditures, depreciation and amortization. Net operating income equals all revenue from the property minus all reasonably necessary operating expenses.
The company that arranges for the funds or the loans or other investments. The Banks/ NBFC’s are largest originators for loans.
Origination fee also known as processing fee which is charged upfront by the Bank / NBFC for processing a new loan application.
The payment type option let the borrower to choose the payment method to repay the loan amount.
Prepayment is the repayment of the loan before its official due date.
The fee is charged to allow the borrower to prepay the loan amount before the due date.
The penalty charged to paying the loan amount in full before the due date.
A sum of money borrowed from the bank/ NBFC on which the interest is paid.
PRIVATE MORTGAGE INSURANCE
An insurance taken on mortgage to protect the Bank/ NBFC against any default by the borrower.
Refinance is done to avail better rate of interest or an extra amount as a loan.
RETURN ON ASSETS (ROA)
ROA is used to know how efficiently the assets are used to generate more income.
A new mortgage loan taken on the same property which is already mortgaged before.
Term refers to the loan tenor or the life of the loan or the number of years for which the borrower borrows the loan.
Underwriting is an important function of the financial industry and is used to evaluate the risk involved in an investment or a loan.
The fund which is used to execute the day to day expenses of the firm.
The extra finance fee added to the loan is yielding.