When a borrower’s home loan application gets approved by the bank, the bank intimates the borrower of the loan approval by issuing a SANCTION LETTER. The sanction letter so provided mentions all the facts, figures (loan amount), conditions as well as the PSD conditions including the banking terms and policies about the rate of interest.
Let us see in brief what does the sanction letter covers.
1) Approved Loan Amount –
The sanction letter states the borrower’s loan eligibility. The amount on the sanction letter is the approved loan amount of the borrower based on his financial credentials.
2) Loan Tenure –
The sanction letter by bank states the time period a borrower is allowed to borrow the funds, called loan tenure in home loan banking.
3) Benchmark Rate Of Lending-
The sanction letter states the benchmark rate i.e. base rate – MCLR below which the bank will not lend funds to the borrower along with the MCLR time renewal (whether overnight, one month, 3 months, 6 months or 1 year.
4) Applicable Rate Of Interest-
It is the final rate of interest that is charged to the loan borrower. It consists of the MCLR + Bank margin percentage.
5) List Of Charges –
The sanction letter describes the various charges a loan borrower needs to pay with its corresponding cost amount with the application GST on the same. Such costs are
a) Processing Fees (PF). Specification on whether refundable or non-refundable is added along with PF.
b) Administration Fees.
c) Ceraai charges.
d) CIBIL charges.
6) Pre-Payment & Part- Payment –
Sanction letter mentions the Pre & Part- Payment conditions and it’s respective charges if any for the borrower if he wishes to foreclose or make the partial loan payment.
7) LTV Guidelines –
Sanction letter strictly mentions the LTV guidelines of the bank on the property funding.
8) Home Insurance –
The sanction letter mentions the amount of the home insurance/property insurance sanctioned against the home loan for the borrower with the premium installments (whether single or regular premium which means monthly or 1-time premium payment) to
9) Special Conditions –
Special conditions also called PSD conditions are the terms and conditions for the borrower on which the bank agrees to sanction his case. Examples of conditions so laid can be as,
a) Loan closure conditions.
b) Act opening.
c) Repayment conditions.
d) Case-specific conditions such as
i) Latest salary credit.
ii) Updated bank account statements.
iii) Latest rental credit updation in an account.
iv) Co-Applicant addition.