Points To Consider When Choosing a Mortgage LoanPurchase & Refinance Mortgage LoansUpdated on Mar 23, 2020 View more like this | Visit India, UN | Contact Alisha Antil |
According to a report released by The Times of India Business, loans against property grew by 33% by the end of September 2018. Such steeping rise in the number of mortgage loan applications is because of the following reasons –
-Improved financial situation of customers.
-A constant need for funds.
-Easy availability of secured credits.
-Flexible tenor to choose from.
-No end-usage restrictions.
Customers can avail mortgage loans conveniently to meet various requirements like educational expenses, medical expenses, home repairs, wedding expenses, etc. Nonetheless, customers looking for such loans must consider a few pointers before reaching a final decision.
Things to consider before applying for a mortgage loan
1. Loan amount
Salaried individuals can avail up to Rs.1 crore while the maximum loan amount for self-employed professionals can go up to Rs.3.5 crore. The mortgage loan amount one can avail depends upon the property they are offering as collateral.
2. Loan to value
LTV is the ratio between the loan amount and the cost of property and is expressed in percentage form. Therefore, an LTV of 75% depicts that 75% of the estimated property value will be available as a loan. Usually, financial companies offer loan amounts of up to this percentage.
3. Rate of interest
Property loan interest rate is a crucial factor and determines the cost of loan. Consequently, it is essential to compare and check for options wherein one can avail credits at a lower rate of interest. It is to note that opting for a shorter tenor may have positive effects on interest rate as reduced repayment period improves the viability of application.
Further, one must compare floating interest rate and fixed interest rate to pick the better option for their loan against property. Customers can choose a floating rate of interest for the loan and pay interest based on the current market rates. In case of a fixed interest rate, it is constant for the entire tenor of the loan.
4. Tenor of loan
The loan tenor is up to 20 years for a mortgage loan, and hence one should opt for a loan which better suits their repayment capability. Having a longer tenor can make the equated monthly instalments (EMIs) shorter but increase the payable interest. Conversely, opting for a shorter tenor increases the EMIs; the loan is repaid sooner and it also reduces the interest payable.
Further, borrowers should determine the ideal tenor of a loan against property by considering factors like loan amount, EMIs, age of the applicant, etc.
5. Charges and fees
Apart from the property loan interest rate, several additional charges are included in the loan, such as -
-Processing fee: It is a one-time fee applied on loan and is usually 1%-2% of the loan amount.
-Statement charges: Financial companies may levy additional charges for statement generation.
-EMI bounce charges: This fee is levied in case the EMI is not paid within the due period as specified by the financial institution.
-Part pre-payment charges: It is applied when the borrower pay a portion of the outstanding balance to reduce the burden.
-Foreclosure charges: This is applied in case the borrower wants to settle the outstanding loan amount before the tenor.
6. Ease of loan procedure
Secured loans are easy to avail because of the less financial risk involved. Therefore, it makes the process simpler for borrowers.
Subsequently, a mortgage loan can be easily availed by considering these pointers. Knowing these will also help individuals in maximizing the benefits of the loan against property. Further, individuals must apply for a loan against property after checking their repayment capability as this will help them determine the ideal tenor of the loan, rate of interest, and loan amount. These factors are crucial and can help borrowers significantly.
-Improved financial situation of customers.
-A constant need for funds.
-Easy availability of secured credits.
-Flexible tenor to choose from.
-No end-usage restrictions.
Customers can avail mortgage loans conveniently to meet various requirements like educational expenses, medical expenses, home repairs, wedding expenses, etc. Nonetheless, customers looking for such loans must consider a few pointers before reaching a final decision.
Things to consider before applying for a mortgage loan
1. Loan amount
Salaried individuals can avail up to Rs.1 crore while the maximum loan amount for self-employed professionals can go up to Rs.3.5 crore. The mortgage loan amount one can avail depends upon the property they are offering as collateral.
2. Loan to value
LTV is the ratio between the loan amount and the cost of property and is expressed in percentage form. Therefore, an LTV of 75% depicts that 75% of the estimated property value will be available as a loan. Usually, financial companies offer loan amounts of up to this percentage.
3. Rate of interest
Property loan interest rate is a crucial factor and determines the cost of loan. Consequently, it is essential to compare and check for options wherein one can avail credits at a lower rate of interest. It is to note that opting for a shorter tenor may have positive effects on interest rate as reduced repayment period improves the viability of application.
Further, one must compare floating interest rate and fixed interest rate to pick the better option for their loan against property. Customers can choose a floating rate of interest for the loan and pay interest based on the current market rates. In case of a fixed interest rate, it is constant for the entire tenor of the loan.
4. Tenor of loan
The loan tenor is up to 20 years for a mortgage loan, and hence one should opt for a loan which better suits their repayment capability. Having a longer tenor can make the equated monthly instalments (EMIs) shorter but increase the payable interest. Conversely, opting for a shorter tenor increases the EMIs; the loan is repaid sooner and it also reduces the interest payable.
Further, borrowers should determine the ideal tenor of a loan against property by considering factors like loan amount, EMIs, age of the applicant, etc.
5. Charges and fees
Apart from the property loan interest rate, several additional charges are included in the loan, such as -
-Processing fee: It is a one-time fee applied on loan and is usually 1%-2% of the loan amount.
-Statement charges: Financial companies may levy additional charges for statement generation.
-EMI bounce charges: This fee is levied in case the EMI is not paid within the due period as specified by the financial institution.
-Part pre-payment charges: It is applied when the borrower pay a portion of the outstanding balance to reduce the burden.
-Foreclosure charges: This is applied in case the borrower wants to settle the outstanding loan amount before the tenor.
6. Ease of loan procedure
Secured loans are easy to avail because of the less financial risk involved. Therefore, it makes the process simpler for borrowers.
Subsequently, a mortgage loan can be easily availed by considering these pointers. Knowing these will also help individuals in maximizing the benefits of the loan against property. Further, individuals must apply for a loan against property after checking their repayment capability as this will help them determine the ideal tenor of the loan, rate of interest, and loan amount. These factors are crucial and can help borrowers significantly.
