Home loans are beneficial to property buyers. They help property buyers to arrange for funds and purchase the property that they desire. It is expected that the home loan market would be worth Rs 46.1 lakh crore by FY 24. Since the lenders provide loans against collateral called the building, they charge a comparatively lower rate of interest. It is mutually beneficial for the lenders as well as the buyers. The lender has collateral security with them, and the borrower can realize the dream of owning a property. In India, those who aspire to build a new house as well as homeowners looking for finance to renovate, or repair existing homestead also look for a home loan. When a borrower approaches a lender, the NBFC will extend a loan up to 80 to 90% of the value of the property. The borrower has to arrange the rest of the money from his pocket. There are different kinds of mortgage loans in India. Let us discuss some of them:
- Home Loan: This kind of loan solves the financial needs of the borrowers. The borrowers may shop for a loan to buy a newly constructed apartment, or old house, for the reconstruction of the home. This loan carries a mortgage loan interest starting at 8.25%. Usually, the tenure of the loan is 30 years. A home loan taken to purchase a property can’t be used to finance any business or personal needs of the borrower.
- Loan Against Property: In this kind of loan, the borrower has to pledge the property to the lender. After full repayment of the loan, the buyer gets back his documents. Usually, the financial institutions extend a loan amount ranging from 5 Lakhs up to 10 Crore. There are financial institutions that provide up to 25 crore rupees with a loan term of 10-15 years. These lenders provide loans for both commercial as well as residential property. The lowest rate of interest you can get for a loan against property is 9.5%.
- Second Mortgage Loan: Many financial institutions offer second mortgage loans to borrowers who already have an original mortgage loan. Imagine a borrower took a loan for Rs.45 Lakhs in 2011, and he requires an additional loan during 2017. He can approach the same lender and get a second mortgage loan approved if he has a clean repayment track record of the previous loan. In such a case, the lender will consider his credit score as well before giving an additional loan to him. The borrower has to repay the second mortgage loan along with the original loan to the lender.
- Commercial Purchase: When a person starts a business, he may need a space to open a shop or commercial complex. The lenders provide finance to help businessmen to own office space for running his business, at a low rate of interest like 9.5%. But these businessmen can’t deviate from the purpose for which they have taken this loan and use the money for a different purpose.
- Reverse Mortgage: Unlike other property loans, the lender extends this type of loan to help senior citizens to own a property. The name reverse mortgage suggests that the working of this loan is exactly the opposite of that of the other loans. In the reverse mortgage loan, the title to the property is with the lender, and the banks provide money as EMIs to the senior citizens. If during the tenure of the loan, the borrower dies, the property is sold and settled against the balance amount of the loan. The remaining amount, if any, is given to the legal heirs of the borrower.
- Lease Rental Discounting: In this type of loan, a homeowner or commercial property owner will lease his property to earn a little income. These people can get a loan against the property leased out. Hence it is called as lease rental discounting. The lender calculates the loan amount based on the rent he receives, and the tenure of the loan depends on the term of the lease.
In short, home or commercial property owners borrow money from the financial institutions to buy a residential or commercial property. The rate of interest on such mortgage loans is usually lower as the loan is given based on collateral owned by the borrower. But a home loan can’t be used for financing the personal needs of the buyer.
