Most of us in our lives need funds urgently at some point in time. In such situations, being an owner of a property proves to be a benefit as you can mortgage it and raise the funds you need and still have the property in your name.
What is Mortgage Loan?
Mortgage Loan is a long tenure borrowing against a property that you own. The tenure normally ranges from 7 years to 15 years. The property can be a plot or a built-up one. The different types of property which can be mortgaged are
- Schools / Colleges / Hospitals
- Paying Guests / Hotels / Lodges
Plots: Most banks do not prefer lending with land as collateral. Some banks provide loans to those owning a residential or commercial land and very few banks are ready to fund on industrial plot and the number of banks reduces even further with larger piece of land (especially if the land is more than 20,000 sq. ft.)
Built-up properties: For built up properties the “No. of Units“plays a vital role while availing loan. “Unit” refers to a completed portion of the property like a shop or a gala in a commercial property or a residential house in a multi storied property. If a floor has 2 houses then it’s counted as 2 units.
Most banks are ready to fund for a residential property with four or less units. Generally NBFCs fund properties with more than six units and not the banks.
Banks are very comfortable with funding for commercial properties that are used for office purpose or for light industry purpose. Commercial property rented to a corporate is highly preferred by banks and they fund basis the Rental under Lease Rental Discounting (LRD). Rent paid in the following manner will not be considered for LRD
- Vide cash
- Vide cheque or bank transfer without TDS deduction
- Vide unregistered rent agreements
Title Flow or Legal Checks: Clear title flow of the property being mortgaged is very important and lenders normally look for 30 years of title flow. Some lenders are happy with 15 years of title flow as well. The borrower must ensure following documents are in place for easy processing of Mortgage loans
- Parent Title Deed
- Chain Deeds
- Ownership Deed in the name of the borrower
- Building Sanction Plan and Permit – For built up property only
- Tax Paid for latest 3 years – Latest to be in Borrower’s name
- Corporation / Municipality mutations records – Latest to be in Borrower’s name
- Encumbrance Certificate for 30 years – Latest to be in Borrower’s name
Note: None of the banks or NBFCs fund loan to religious properties. No private banks, no NBFCs fund mortgage loans on third party collateral. Only Nationalised and cooperative banks fund mortgage loans on third party collateral.
Who can avail mortgage loan?
The following types of individuals or entities are eligible for a mortgage loan:
- Salaried individuals
- Sole Proprietorship or professionals acting individually
- Partnerships firms or Limited Liability Partnerships
- Private and Public Limited Companies
- Trust and Society
The loan amount is evaluated based on:
- The value of the property
- The declared income of the Borrower/s
- Other sources of income like rent; interest; agriculture income can be considered by lenders for additional comfort
- If it is a Lease Rental Discounting (LRD) proposal, then based on the rental income the loan amount is calculated
- If you have an existing mortgage loan and your repayment record is good, you can avail an higher mortgage loan from another banker
- If you maintain a very good bank balance
Advantages of Mortgage Loan
- These loans come at a relatively lower rate of interest
- High tenure (ranging between 7 – 15 years)
- These loans can be in the form of an overdraft known as Dropline Overdraft that allows the borrower can draw cash from his/her account up to an agreed limit and interest is paid only on the withdrawn cash
- LRD Offers step-up EMI, meaning your EMI amount increases with incremental / escalated rental income over the years
- You can get a high loan amount of around 65 to 100% of the property value for residential properties, 50-70% for commercial and industrial properties by just mortgaging and not selling