India’s household debt reached approximately Rs. 6.74 Lakh Crore in 2017-18. Such debt is inclusive of consumer debt as well as various types of mortgage loan available in the country. Such loans are extended against a collateral property, and may or may not have end-usage restrictions. Multiple types of credits are extended under this umbrella. These credits are tailor-made to suit the requirements of an individual.
Mortgage loans can be classified into different categories based on the use of funds availed, as well as interest rates levied. Nonetheless, such advances are usually procured to finance high value of expenses of all types respectively.
# Mortgage Loan Types – Based On End User Restrictions
Such advances are available to purchase, construct or renovate a house. The property purchased or being constructed itself acts as the collateral guarantee.
Nonetheless, home mortgage loan have associated end-use restrictions, wherein the entire advance is directly credited to the seller’s account instead of the borrower.
Loan Against Property (LAP)
A loan against property is different from a home loan in terms of its usage. While home loans are acquired to purchase or construct a new home, loans against property are extended by keeping an existing house as collateral.
An individual can obtain credits against this umbrella against a lien mark on an existing house in his/her name. Advances received can be used to finance high-value funding requirements, such as higher education, travelling, marriage, business-related expenses, etc. as no end-use restrictions are levied on such credits.
Such a mortgage loan is usually extended to senior citizens who don’t have a steady source of income. Periodic EMI payments, against the collateral property, are credited in the accounts of borrowers in case of such advances. These unsecured advances are used to fund the day-to-day requirements of an elderly individual, and hence, have no associated end-usage limitations.
Upon the death of the borrower, the collateral property is usually sold off by the lending financial institution to recover expenses. In case of appreciation of property value, the excess amount generated from profits are returned to the immediate family of the deceased.
Commercial Loan Against Property
Such mortgage loans are only extended to individuals looking to purchase real estate to fulfil their commercial requirements. Applicants seeking to start or expand their business can opt for such loans to secure proper space for corporate requirements.
# Mortgage Loan Interest Rates
Interest rates levied on such advances are relatively lower than the cost of borrowing unsecured loans. The collateral property dilutes the risk factor assumed by financial institutions while lending such credit, thereby accounting for the lower rates.
Nevertheless, individuals can avail a loan against property against either fixed or floating interest rates. While fixed rates provide the benefits of apt financial planning beforehand, floating interest rates allow individuals to reduce the total value of EMIs in case of a dip in the market interest rate.
Must Read: Loan Against Property Interest Rates
Therefore, while comparing floating interest rates v/s fixed the interest rate – which is a better option for LAP, it is essential to determine the average financial burden of the same. Nonetheless, since loan against property is a high-value credit, any increase the overall interest rates might have an adverse effect on the financial standing of a borrower.
Individuals might find it beneficial to opt for such loans against fixed interest rates and opt for balance transfer feature if the interest rates fall. Premier financial institutions provide such facilities on mortgage loans.
They also bring pre-approved offers that make availing loans quick and easy. Pre-approved offers are available on numerous types of credits such as secured home loans, loans against property, as well as unsecured loans like business loans, personal loans, etc. You can take a look at your pre-approved offer by sharing your name and phone number.
Loan against property comes with the flexible tenor as well, allowing individuals to determine their EMI burden as per income and FOIR. You can opt for lower EMIs and repay your debt for an extended period, or vice-versa. The main benefit of such advances is that it caters to various kinds of needs of borrowers, with high-value funds being disbursed to eligible applicants.