Loans: Financial crises are like unwanted guests, which always turn up uninvited and always at the wrong time thwart your plans. Many of us prepare ourselves for such a situation and keep some funds ready, while many might not have such options of funds ready and need to fall back on unpleasant options like asking our relatives or friends for money. So how to arrange money during such uncertain times? Let’s take a look at our recommendation for the time of crisis taking home mortgage loans.
What are Home Mortgage Loans?
We all are well aware of the high-interest rate of personal loans, but we often take that as we run out of choice. And this is when being a homeowner proves to be a boon where you take a loan against property. It is also known as a Home Mortgage Loan, and it is a loan taken out against your personal property in simple words. The property in question could be a shop you own, a house, or even a non-agricultural land.
The mortgage loans are offered by banks and also non-banking finance companies. The lender of the home mortgage loans provides the principal loan amount and charges interest on it. One can repay the mortgage loan amount in monthly installments. The property which is kept against the loan serves as collateral, and it stays in possession of the lender until the loan amount is fully repaid. During all this process, the lender has a complete legal claim over the property in question, and if the borrower fails to repay the loan amount, then the lender has the complete right to seize the property and auction the same.
Types of Mortgage Loan Interest Rates
There are two ways to pay off your home mortgage loans; let’s understand both options.
Fixed Mortgage Loan Interest Rates:
The name is self-explanatory; however, for those who did not understand, a fixed mortgage loan interest rates is the rate that stays the same for the entire loan tenure. In this way, you may be allowed to opt for a fixed rate if you opt for a short loan duration. Those looking for a long tenure may not be able to avail of the fixed interest rate.
Floating Mortgage Loan Interest Rates:
In the floating mortgage loan interest rates, the interest is adjusted as per the prevailing market rate. You cannot predict the exact interest rate, but you can get an idea of the lender’s website’s ongoing interest rate. In this option, the interest rate can change periodically, and it is directly linked to the Marginal Cost of Funds based lending rate (MCLR).
Mortgage Loan Eligibility Criteria
The mortgage loan eligibility varies from bank to bank; however, some factors that all lenders or banks consider are the borrower’s income, current debts, his/her savings, repayment track record, and the market value of the property that is kept against the loan.
Other than this, a few other options the lender considers are the borrower’s employment status, age, CIBIL score, financial standing to understand whether he/she is capable of paying off the loan amount. The credit score is very crucial in determining the loan amount that will be sanctioned.
The banks usually prefer a borrower capable of paying back the loan amount while employed. The maximum age for a mortgage loan’s maturity is set 60 years for a salaried individual and 70 years for a self-employed individual.
Requisite Mortgage Loan Documents
The key documents asked by most of the banks or other financial institutions for home mortgage loans are usually the same, with slight variations. Here’s a list of mortgage loan documents for salaried and self-employed individuals.
|For Salaried Individuals||Self-Employed Individual|
|Application form + passport size photograph||Application form + passport size photograph|
|Valid photo identity||Valid photo identity proof|
|Current residence proof||Current residence proof|
|Last 3 months’ salary slips||Proof of business, along with educational qualification certificates|
|Form 16||In the case of professionals, last 3 years IT returns + last 3 years balance sheets + P&L statements.|
|Last 6 months bank statement||In case the individual is a businessman, business profile, last 3 years IT returns, last 3 years balance sheets, and P&L statements.|
|Cheque for processing fee||Last 6 months bank statement, both business + personal (for businessman)|
Features of Mortgage Loan
Now that you’re well aware of a mortgage loan, mortgage loan interest rates, and mortgage loan documents, it’s time to look at some important mortgage loan features.
- Note that not all types of properties, real estate, or otherwise are acceptable by the banks or financial institutions for a loan.
- A lender usually accepts fully constructed properties, for example, a well-constructed house or a shop.
- Home Mortgage loans are available for longer tenure for up to 30 years and can be paid off in monthly installments or EIs
- As the lender or the bank provides the loan amount.
- The property in question should possess marketable value, and it should be a freehold property, which means a property that gives the owner full legal right to transfer its ownership.
- Home mortgage loans can be customized to suit the borrower’s requirements.
Loan-to-value ratio (LTV)
To get a good deal on a mortgage loan, it is always advisable to compare various lending institutions and compare the loan-to-value ratio (LTV) offered by them. Private sector banks may offer up to 75% of the property’s value as the loan amount, whereas public banks may offer up to 65% of the property’s value. This varies based on the property evaluated by the financial institution or their internal policies and restrictions.
Taking a mortgaged loan is one of the best options to raise money in a time of financial crisis or an emergency. However, if the borrower fails to pay off the loan amount on time, the lender has legal rights to take possession of the mortgaged property. Like any other loan, the individual fails to repay the amount leads to a negative impact on the borrower’s CIBIL score, apart from the penalty charged on loan repayment. Therefore, it is advisable to thoroughly assess your own capabilities to repay the loan amount before opting for a mortgaged loan.
Also Read: Know All About Reverse Mortgage Loan Scheme