According to a recent survey conducted by Saral Credit, a fin-tech platform, around 67% of Indians rely on personal loans to meet urgent financial requirements. However, getting a personal loan can be difficult if you don’t have a good credit score or are unemployed. Even if you can avail of a personal loan, because of the aforementioned reasons, the interest rates can hurt your pocket.
Another survey conducted by Finology Ventures, a subscription-based personal finance platform, revealed that 75% of Indians do not have an emergency fund. Therefore, any exigency, such as hospitalization, surgery, or expensive education, can leave individuals in limbo. However, mortgage loans have often been the go-to option for such situations in the country.
Importance of Mortgage Loans
If you urgently need capital, whether it is for your child’s marriage, sending them abroad for education, or for your surgery, you may not be able to turn to your family or friends. Lending institutions can also reject loan applications if prospective borrowers fail to prove their creditworthiness and repayment capability. In such cases, you can opt for a loan against your home or property.
By opting for mortgage loans, you can get instant access to funds that should cover your expenses. Furthermore, unlike personal loans, which are unsecured and attract high interest, mortgage loans come with nominal interest rates.
Features and Benefits of Mortgage Loans
The following are some of the features and benefits of a loan against a home or property.
- Lower Interest Rates: As previously mentioned, loans against property come with lower interest rates compared to unsecured loans, as you are pledging your property as collateral. This gives the lender more confidence about you repaying the loan.
- Long Repayment Tenures: Mortgage loans can have tenures of up to 20 years, which makes EMI amounts smaller and more manageable.
- Multipurpose Use: You can use the loan amount for various purposes, such as business expansion, debt consolidation, marriage expenses, higher education, or medical emergencies.
- High Loan Amount: As these are secured loans, lenders offer a higher loan amount compared to unsecured loans with a loan-to-value (LTV) ratio of 60-70%.
- No Restrictions: You don’t have any restrictions on the usage of the loan amount, and you can use it to meet any of your financial requirements.
- Easy Eligibility: Unlike personal loans, meeting the eligibility criteria for loans against a home or property is fairly easy. Typically, you must own the property and have a decent credit score.
- Tax Benefits: Depending on how the money borrowed is used, you can claim tax benefits on interest u/s 37 (1) for commercial purposes, or u/s 24 (b) for financing any other property.
Interest Rates on Mortgage Loans
The interest rates for mortgage loans are lower than unsecured loans, as you are pledging your property. The chances of you defaulting on payments are low. Furthermore, given the longer repayment periods, you can select an EMI that is easy to repay and won’t affect your other obligations.
Downsides of Mortgage Loans
While loans against homes or properties inherently come with numerous benefits, there are a few drawbacks as well.
- Lose Possession of Property: If you fail to make timely payments or miss a few payments, you may lose possession of your property. The lender will have the right (as per the agreement) to take possession of the property, sell it, and recover the outstanding amount.
- Long Approval Times Without Proper Documents: If you don’t have all the documents in place, the loan against property may take a long time to get processed, and for the amount to be sanctioned. The lending institution will take its time to do its due diligence, and missing documents will only delay the process.
- Processing Fees and Other Charges: Before applying for a mortgage loan, enquire about processing fees and other charges. Certain lending institutions charge a higher amount as the processing fee.
Documents Required for Taking Loan Against Property
Here are the documents you need to submit while taking a loan against your home or other property.
- Identity proof
- Address proof
- ITR filed for the previous two years
- Bank statement for the last six months
- Property documents
- Passport-size photographs
To be eligible for a loan against property, you must have a decent credit score and annual income. Additionally, the lender may consider your age, qualification, and number of dependents to ensure you can make payments over the life of the loan. Once you fulfill the eligibility criteria, the lender reviews your loan application and gives the approval.
Taking a loan against your home or property gives you the funds you need to meet your obligations, whether it is for your business, your child’s education, or a life-saving operation. For example, arranging ₹20-₹30 Lakhs within a short period may not be possible through friends, family, or by applying for personal loans. In such situations, you can pledge your property and get access to the funds you need.
Depending on the property value, this amount can be quite significant, which can lighten the burden. You should take a mortgage loan if you have an urgent requirement for capital, which may not be viable through a personal loan. However, you must weigh the pros and cons, and read the fine print before signing the agreement. You must also make regular payments and not default on the loan, as you can lose possession of the property.
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