Juggling figures to budget the EMI for home loan?

The EMI you repay against the home loan amount is a whole unit of principal amount, interest rate and the loan term. With the ever rising property prices, lowering interest rates people prefer to take a home loan and pay monthly EMIs over monthly rents, nowadays. But the lowering interest rate and longer tenures cannot be the only thing for hooking with a home loan for quite a long exhaustive period of time. Before getting a home loan try to understand the importance of an interest rate in your loan tenure. There are three kinds of housing loan interest rates: fixed, floating and combination of fixed & floating rates. Most of the financers insist upon the combination of fixed & floating, but it’s better to choose your own interest rate from the available depending on your financial profile and convenience.

The housing loan interest rates play a vital role in reducing or increasing the interest cost. Before selecting know the benefits and drawbacks of each property loan interest rate.

Fixed rate of interest: the interest rate is fixed for the whole loan tenure; it may rise a bit in case of dire market condition. Some of the benefits are:

·        The rate doesn’t fluctuate depending on the market condition and government policies.

·        Suitable for risk averse persons who prefer stability over money.

·        It’s suitable for good budgets with fixed monthly repayment schedule.

The drawbacks of fixed loan of interest are:

·        It is higher than the floating rate of interest.

·        It is no benefitted with reduced rate of interest.

·        Borrowers have to pay the same amount of interest cost which may be higher than floating rate.

Floating rate of interest: this interest rate is adjustable in nature and fluctuates depending on the market condition and government policies. Some benefits are:

·        It’s is lower than fixed rate of interest and reduces the interest cost.

·        It decreases more when the market condition prospers.

·        It helps in savings for future, in case the rate climbs up.

The drawbacks of floating rate of interest are:

·        Monthly installments fluctuate owing the fluctuating rates.

·        Interest rate may rise and even cross the fixed rate in case the financial health of the market degrades.

·        No stability in monthly budget & not suitable for risk averse & budget friendly people.

·        The combination may increase the interest cost.

Combination of fixed & floating rate: in this rate of interest the rate is fixed for a committed period of time, and then it switches to floating rate of interest. Some benefits are:

·        It helps the borrower with a fixed budget initially, when they are not ready for fluctuations.

·        After the committed period, when the rate switches to floating rate they pay lower EMIs compared to the earlier installments.

·        They can save money for future installments.

The drawbacks of this interest rate are:

·        The interest rate may rise if the market rates are higher during the switch over.

·        Adjusting with the fluctuations may be problematic with fixed source of income in case the rate increases.

All these juggling figures may be tamed and help you to set a monthly budget with a online EMI calculator and get you a suitable home loan tailoring the interest rate depending on your affordability and financial profile. All the rates are combination of advantages & disadvantages, in order to enjoy some benefits you have to adjust with the drawbacks.

Here’s a brief overview of loans against Home

Loan disbursed against the mortgage of the property is known as loan against property or mortgage loan.If any borrower owns any kind of property- fully constructed, residential or commercial property, then it is a wise decision to unlock the property potential and use it to provide a shelter to the dreams and aspirations. If one goes by the traditional way of mortgaging, they will end up to a bitter experience. Shrugging the traditional way today’s world is looking forward to embrace the loan against property for financing their personal desires of holiday plans, marriage of their children, education cost, etc. provided by the banks and other financial organizations.

The features of loan against property are: firstly, higher loan amount is available for longer tenures at attractive rates; secondly, quick and hassle-free loan with speedy approvals; thirdly, residential and commercial properties accepted as collateral. The benefits are like higher loan amount with lower emi and flexible repayment options between drop line overdraft facility or emi based loan repayment.

The borrower who wishes to avail the mortgage loan, needs to fulfill certain criteria of having good CIBIL score, younger the borrower, easier to get the loan sanctioned, job stability to secure the EMI repayment. Some generic documents are required to be submitted like; proof of residence, proof of identity, latest bank statement, salary slips of last six months, form16 and copies of all property documents that one chooses to pledge for the loan.The self-employed individual/professional needs to submit the certified financial statement of last three years, latest bank statement, proof of business existence, profit and loss statement of last three years along with property papers and other basic documents.

If the borrower cannot fulfill the repayment capacity for getting the mortgage loan sanctioned, then they can add a co-applicant. The loan providing organization will check on the co-applicant to confirm, that, both the borrower and co-borrower can repay the mortgage loan amount or not.

Banks and the financial company provides the loan at different rate of interest depending on the pledged property type like; HDFC loan against home loan for commercial property varies from 10.10%-10.60%; loan against rent receivables attracts 9.85-10.35%, for dropline over draft against property the rate is 10.60-11.10%.

The mortgaged property acts as a security deposit for the money that the banks or financial companies provide as loan. The original papers of the property remain under the lending organization’s custody.

The loan tenure can be of fifteen years. This type of loan takes longer to get sanctioned as the organization needs time to scrutinize the applicant’s details and the property details. It covers commercial, residential and industrial properties. Property on lease or bounded by power of attorney is not accepted as collateral for the mortgage loan.

Before applying for the loan one must ensure that the loan procedure should suit the purpose and the purse. So choose the lending organization diligently. The borrower must pay special attention to the tenure of loan, longer tenure results higher outflow of interest.

The value of the HDFC loan against property amount depends on the market value of the mortgaged property; the banks and financial organization provide 40-60% of the property value. If one fails to clear their debts, the lending organization has full authority to seize the property and sell it to get the lending amount. So it is advisable to the borrowers to avoid such kind of situation one must pay the EMI in time.

What are the Advantages of a Loan against home?

A Loan against home is one of the most convenient type of loan available in the market. Although there are various avenues of availing cash, a loan against home or lap is probably the best option there is, especially when you want large funds for:

 -   expanding your business

-   Higher education

-   Wedding expenses

-   purchasing large equipments and machinery

-   buying a property (commercial / residential)

-   closing off other high cost loans

There are so many different reasons you might want to use your money for, point here is to have an easy access to it, as and when you need it. Although the convenience aspect cannot be questioned, there is the concern that the interest rates for borrowing against your property are higher when compared to other types of secured loans such as housing loans. However, there are several advantages that are unique to availing a loan against property which make them a popular choice despite their higher rates. Let us take a look at some of the main advantages of a LAP:

1.    Loan of up to 70% of the value of your property. The maximum loan amount that can be availed is up to 5 crores (as provided by most banks).

2.    There is the option of Overdraft wherein you can borrow a large amount depending on your requirement despite having insufficient balance in your account. You can avail this after providing your property as collateral. Your overdraft limit will be determined by the value of your property as well as your account history.

3.    The total processing time is much less when compared to the processing time of home loan applications.

4.    If the value of the property has risen during the tenure of the loan, the owners also have the option to avail a top-up on their existing loan. This is especially useful for business men.

5.    There are convenient repayment options such as part payment or foreclosure and more than sufficient repayment tenure of 5 to 15 years.

6.    You can easily borrow against a residential or a commercial property.

If you are looking for large funds in a short span of time, then you can definitely consider availing a loan against your property. Of course being eligible is a whole other story.