When faced with a financial crisis, most people usually think of using up their investments or taking a personal loan. While investment funds can help you save up on interest payments, they interrupt your financial goals in the long run. On the other hand, a personal loan comes with a high rate of interest that adds up to your existing financial problems. Therefore, in such cases, choosing the right kind of loan is important.
When looking up various loan options available in the market, people often fail to realize the value of their property. A loan against property or mortgage loan can be a good idea when in need of huge funds.
What is a Mortgage Loan?
A mortgage loan is a type of secured loan that you can avail of by keeping a commercial or residential property as a mortgage. It offers a simple solution to your financial needs as you get to use the locked-up value of your property without having to give up the ownership. Almost all banks, non-banking financial companies and housing finance companies offer a loan against property.
Why is Mortgage a Good Idea?
If you have a fully constructed commercial or residential property, then a mortgage loan is your best pick in comparison to other types of unsecured loans. A loan against property offers a higher amount at cheaper rates of interest. Besides, since this type of loan comes with no restrictions on end usage, the borrowed amount can be used for any purpose, be it for financing a wedding or your child’s education, starting up a business, funding a vacation, or simply paying for an unforeseen medical emergency.
Benefits of a Mortgage Loan
If you are still unsure about whether to keep your property as a mortgage to avail of funds, then here are a few benefits of a mortgage loan you should consider.
Affordable Interest Rates
The mortgage loan interest rate typically ranges between 8.25% to 15%, which is relatively lower than unsecured loans, like a business or a personal loan. However, the interest rate depends on the loan amount, property value, repayment capabilities, and the type of interest rate chosen (fixed rate of interest or floating rate of interest). It is advisable to go for a fixed rate of interest only when there is a possibility of interest rates increasing continuously in the future.
Flexible Repayment Tenor
A mortgage loan can be availed of for a longer tenor up to 18 years. Therefore, if your monthly expenses are higher than your usual savings, or if you are already paying EMIs for an existing loan, then you can simply opt for a longer tenor to reduce the financial burden.
A Large Sum
Lenders usually offer a hefty loan amount accounting to 75-90% of the property’s current market value. This means having a high-value property can fetch you a huge sum.
Quick and Hassle-free Processing
Upon meeting the eligibility criteria and submission of all the necessary documents, including copies of your address proof, identity proof, income proof, legal documents related to the property etc., along with a duly signed application form, NBFCs and banks usually initiate the loan processing, which takes 3-4 working day.
A mortgage loan has lower prepayment charges and lower processing as compared to other types of loans. Therefore, you will need to compare the various charges by lenders before applying for this type of loan.
With the value of the property going up, you can increase the loan amount – a process known as refinancing. This allows you to reap the maximum benefits of a mortgage loan kept as collateral, that too with fewer formalities.
Because a loan against property is taken against a mortgaged property, the rights are automatically passed on to the lender but you continue to have the ownership of the property. Moreover, you also have the option of deciding whether to rent out/lease the property.
If you are in need of a large amount and own a property that qualifies for a mortgage loan, then you should avail of the same because it is certainly a good way to go. Make sure you compare the various interest rates and EMI options. If you have a well-maintained commercial property and want to take a loan against that, you can use a commercial property loan calculator in advance to get an estimate of the monthly dues. The loan processing service is usually prompt. A loan against property is a long-term commitment, so before applying, check the different rates and charges applicable.