Financial crises may arise in everybody’s life both in personal as well as in business. This sudden situation will make us in catch22 situation. The essential funds at right time may not be available due to many reasons, it may be locked in various ways like property, debentures or any other fixed assets, or even in the business cycle as stocks or debtors.
Generally we classify funds as liquid and non-liquid, where liquid funds are readily used for our expenses like cash on hand and bank balances, non-liquid funds are not immediately useful for our day to day expenses. If funds are non-liquid, then we may not be able to use it when there is a crisis.
Financial requirement is very important factor in everybody’s life and the requirement may vary according to the person. The best way to opt for liquidity from non-liquid assets is a mortgage loan. Here, it involves pledging the property as security for the loan, where it will be easily available, and end-use can be anything, such as personal or business. Banks and NBFCs are interested in providing such loans.
What is Mortgage Loan?
It is type of financial lending provided by bankers to either self-employed or Salaried people against their property as collateral. It is a great source of expanding finance to convert the immovable assets into movable cash to use for various purposes. This type of loan is much better than unsecured loan where the interest paid is much lower than the unsecured loan. This usually come with contract with two persons namely the creditor who provides loan amount say bankers and the debtor who has financial requirements against their property.
Purpose for Mortgage loan:
There are various purposes of applying for mortgage loan and it may varies from person to person. Generally it may classified as two broad categories.
Personal purposes: This type of requirements includes personal expenditures like marriage expenses, medical expenses, educational expenses and many other. It is issued to anyone, salaried or businessmen, with property to pledge.
Business purposes: Most businessmen use this option as an easy means to raise funds in times of crisis. Many business people suffer serious financial problems to expand their business and also to meet day to day business expenditures. Bankers understand their situation and provide timely funds against their property either residential or commercial in order to meet their business requirements.
Types of Mortgage loan:
Simple Mortgage Loan: This is a simplest form of mortgage loan where the property will remain with the debtor for the period of time. He need to pay interest as well as principal amount for the loan where the ownership remains with the debtor.
English Mortgage Loan: Here the ownership changes time to time. At first when debtor pledge their property then the ownership will be transferred to creditor and after repayment of the loan amount then again the ownership will be transferred back to the same person.
Reverse Mortgage Loan: In this type of mortgage loan the bankers provide loan against their property. The interest and Principal amount at the end of loan and alsothe asset is returned back after the loan period. It is mainly given to the senior citizen and not for all. It is provided by primary lending institution, National housing bank.
Points to be considered for mortgage loan:
Interest rate : Usually mortgage loan is dispersed under fixed or variable interest rates, where fixed interest rate remains constant but in variable interest rate is adjusted from time to time.
Collateral : The mortgager has to pledge his property either residential or commercial property or even land against the loan amount. Usually 80% of the value of the residential property is taken in providing loan.
Insurance : It also plays an important role from banker side in providing loan. The banker ask for the insurance for the property in order to safeguard the property under uncertain situation like fire, flood and any other calamities.
Down payment : It is the initial payment should be paid by the mortgager as an initial amount in applying for the home loan. The bank provides 70% – 80% of loan amount and remaining should be paid by the mortgager as a down payment
Loan amount : The minimum loan amount provided starts from Rs.3lakhs and maximum loan amount ranges from 100crores against the property.
Foreclosure : It is bankers condition to get back the property from the mortgager when the principal and interest against the loan is not repaid properly by the mortgager by the given loan tenor period.
Repayment capacity : Every bankers are interested to check the repayment capacity of the mortgager by checking their income, age, qualification, assets and assets value liabilities, occupation whether self-employed or business men. These are checked thoroughly before fixing the loan amount or checking the eligibility for the loan.
Mortgage loan or loan against property is an effective solution to covert the non-liquidity assets into money. It is great way to increase the capital amount and to solve any financial crises. It is a mindset of people getting a secured loan against their property with lower interest rate than searching for various financial solutions. It is the best way to change the property into money. Mortgage loan seems to be best solution for business people to get finance on time to expand and diversify their business. It also helps people to certainly solve their sudden financial crises. Thus mortgage loan gives value to our property and helps in our uncertain situation.