Mortgage loan is a good way of availing funds against the value of a property that you own. Since financial obligations might arise unannounced, availing a loan might become necessary. In such cases, a loan against property is a good choice because it is a type of personal loan and has multipurpose use. Moreover, the interest rates are low and affordable since the loan is issued against the value of the property. So, if you have a commercial, residential or industrial property in your name, go for a loan against property if you need funds. However, before availing the loan, there are some facts about the loan which you should keep in mind. These include the following –
- The eligibility criteria
You can avail a mortgage loan only if you meet the eligibility criteria which the lender prescribes. Some of the common requirements include the following –
- The minimum and maximum age criterion is 18 years and 70 years respectively
- In case of salaried borrowers, the net monthly income should be at least INR 40, 000. For self-employed individuals, the annual income should be a minimum of INR 3 lakhs
- Salaried borrowers should have a minimum work experience of 3 years. For self-employed individuals, the business should have a vintage of at least 5 years
- The credit score of the borrower should be at least 650
- The loan amount available
Though a mortgage loan gives you the loan against the property’s value, the entire value of the property is not financed. There is a Loan to Value (LTV) ratio which is applicable. This ratio, along with your eligibility parameters, determines the loan amount that you can avail. The LTV ratio depends on the property which is mortgaged. In case of industrial property,you can avail a maximum of 55% of the property’s value as loan. In case of commercial property, the LTV ratio is 60% and in case of residential property the ratio is 75%.
- The documents which are required
Mortgage loans require documents of both the borrower and the property which is being mortgaged. The common list of documents includes –
- Past Sale Deeds chain if the property has been in multiple possessions
- Registered Sale Deed or Conveyance Deed or Lease Deed
- Latest House Tax Receipt or Return
- An approved plan of the building issued by the Municipal Corporation
- Your income proof (Salary Slips, ITR, Form 16)
- Your identity proof (Aadhar Card, PAN Card, Voter’s ID card, etc.)
- Your address proof (Aadhar Card, Passport, Utility bills, etc.)
- Bank statement of the last 6 months
Besides these documents, other documents might also be required by lenders based on the loan application.
- The interest rate charged
Mortgage loans might charge a fixed or floating interest with the rate varying between 8.75% and 15.15% per annum.
If the property is in the name of multiple individuals, all individuals would have to act as a co-applicant for the loan. So, if you are not the sole owner of the property, you need the other owners to act as co-applicants or co-borrowers.
- Purpose of the loan
A mortgage loan is a secured personal or business loan. As such, it can be used for various financing needs. You can use the loan for personal as well as business use. However, the loan cannot be used for constructing or buying a house.
- Valuation of the property
For availing a mortgage loan, the valuation of the property is done by the lender. An independent valuer is appointed by the bank to assess the worth of the property. The valuer decides the worth of the property using the area of the property, its location, current market prices, age, condition, etc. if the loan is of a substantial value, i.e. more than INR 1 crore, two independent valuers might be appointed for assessing the property’s worth.
- Top-up loans
A top-up loan can be taken on an existing mortgage loan. The loan can be taken from the same lender or when the mortgage loan is transferred to another lender.
- Loan against property overdraft
Mortgage loans also allow the facility overdraft wherein borrowers can deposit any surplus income towards loan repayments. This facility is suitable for individuals who have fluctuating incomes and it helps in reducing the loan liability as well as the interest outgo.
So, before you avail a loan against property, look out for these facts.