Home Loan - Jargon Buster

EMI: Equated Monthly Installment till the loan is paid back. It consists of a portion of interest and the principal

Fixed rate of interest: Rate of interest remains unchanged throughout the period of the loan

Floating Rate of interest: Rate of interest which varies with the market lending rate. This means that there is an element of risk of paying more than budgeted amount in case the lending rates goes up

Processing charge: It's a fee payable to the lender on applying for the loan

Monthly Reducing balance: In this system interest reduces monthly with repayment of Principal amount

Annual Reducing Balance: In this system principal is reduced annually at the end of the year so you end up paying interest even for the portion of principal you have actually paid back

Prepayment Penalties: When loan is paid back before the agreed term of the loan, then banks/ institutions charge penalty for the prepayment

Commitment Fee: Some institution charge commitment fee in case the loan is not availed within a stipulated period, after it is processed and sanctioned

Miscellaneous Cost: It is quite possible that some lenders may charge documentation or consultant charges .