Mortgage Loan is another form of financing your cash requirement to meet any objective. In case of a home loan you go for Bank Finance or any other Housing Finance option, because you meet there eligibility criteria such as Income as well as future repayment capability, but some time due to income doesn’t support to an extend and your loan application gets declined.
It’s not that you look for additional funds only for building or buying a house, but there may be other goals of life such as starting up your own business, payment of higher education fees for children, their marriage, and renovation of house or may be just to fulfil your dream vacation.
I always suggest my financial planning clients, whether you have a small or a big dreams in future as shared above never take them for granted, because one day the D-Day will come and you have to decide either take it or leave it. So always plan these goals in advance so that you do not have to comprise with any situation. Well that’s an advice for a future (long term goals), but what to do in present where the D-Day is knocking your door?
Here the answer is that, you have to look for options to raise funds. You have to figure out how much you can allocate from your existing assets (investible or liquid cash) without disturbing the goals for which they could be assigned. In case you still fall short of then look for some financing. If you look for bank to finance your objectives, then first thing they will look at is, your income, age, paying capacity etc. But what if, these criteria don’t meet as per banks expectations? Now you have to look for Plan B for the same.
Here the Plan B could be “YOU”. Yes you heard right, you can finance for your own dream objectives with your exiting assets. You can utilise your property to unlock the value of it. These types mode of financing are known as “Mortgage Loans” or well know term “Loan against property (LAP)”.
These loans refer to loan against property which would be a residential house, non-agricultural land or commercial shop. In these loans the borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. The loan amount is always less than or equal to the sell price of the property mortgaged. The mortgagor’s lien on the property expires when the mortgage is paid off in full. That means you get two benefits here; (1) you are able to fulfil your dream (2) you get your ownership of the mortgaged property back in future. But remember, such loans come with specified repayment periods with interest.
What you need to look at before choosing a Mortgage Loan?
These loans give you an option to generate additional income from an otherwise idle property. But the property against which you are taking up the loan amount must be free from any encumbrance, i.e., it should not have been offered as security for any other purpose. Under this, you pledge collateral in the form of property against the loan amount. Yes, you still have the right of ownership of the property and when you repay the total loan amount on or before the tenure of the loan, you get back your property.
Who can avail a Mortgage Loan?
Mortgage loans can be availed by individuals, salaried employees, self-employed, proprietary firms, partnership firms, professionals and businessmen. These loans can be applied by individuals and by co-applicants. Owners of the current property, in respect of which the loan is being sought, will have to be co-applicants. However, the co-applicants need not be co-owner.
What is the minimum and maximum amount of loan available?
These loans are available with a minimum amount is Rs. 1Lac to the maximum of Rs. 3Cr lakh, which varies from bank to bank. Also the loan amount depends on the market value of the property and on the borrower’s income. The property prime security with the bank is valued by the bank approved valuers. Sometime bank also considers the income criteria of the borrower which can be 3 times of the average of last 3 years annual income.
What happens if the loan is not repaid?
The property can be repossessed by the bank to recover its outstanding loan amount. To allow recovery of the loan amount, courts can order foreclosure (sale in the open market to recover dues) of the property.
What are the charges involve while applying Mortgage Loan?
There can be charges like processing fee, prepayment charges etc, which are between 0.50% and 1% of the loan amount.
What are the events for which Mortgage Loans are available?
You may have various dream objectives which you want to achieve, but due to lack of funds they might go for a toss. Below are some examples of possible utilisation of your mortgage loan to achieve such objectives/requirements.
Down Payment for New Property: Mortgage loan can be utilised for financing for the down payment of an investment property is a good option.
Home Renovation: Loans are provided for undertaking renovation and repair works of the residential property
Debt consolidation: This is a common reason why a mortgage loan may be availed of, since such loans generally carry lower interest rates than other loans like personal loans. Debt consolidation allows borrowers to pay less interest by securing their debt with their home.
Starting a New Business or Business Expansion: Running short of initial capital requirement to start a business or expansion of existing business, such loans really help you in meeting the needs of your commercial, trade and other business activities.
For Medical Treatments: With the cost of medical treatments going through the roof, even the well-insured can be hit with more than they can handle many treatment centres today want a significant portion of payments to be made up-front. A mortgage loan may be the best way to get top-rated care sooner for a serious condition.
For your children’s Higher Education: While not investing in the house itself, money from a mortgage loan can be utilised for your children’s higher education because it represents an investment that has long-term benefits and should produce an eventual financial return. Mortgage loan financing rates compare favourably with most types of private education loans. However, there are many forms of subsidised or assisted financial aid for college, so it would be wise to compare mortgage loan quotes with other education loans before committing.
But the bottom line is, look for any loans as a last option when you see there is nothing that can be worked out instead of going for loan.
So “Plan in Advance to Avoid Advance”