Mortgage loans – What they are, what they do

As a rule, most people steer clear of taking loans. Admittedly, taking a loan is a huge responsibility – you must be sure to make regular repayments and juggle your other finances for years. But there comes a time when taking a loan becomes a necessity. One may be in urgent need of money for a personal or professional need. It is not always possible to raise money from private sources.

Hence, it is feasible to take a loan from a reputed financial institution. You may choose to take a personal loan, or you may leverage your owned property by taking a loan against it. This option is known as a mortgage loan.

You can pledge your owned residential or commercial property to get a mortgage loan. These loans are more affordable than personal loans, since they are secured loan products. The best financial institutions in India offer quick, hassle free mortgage loans at good rates of interest as well.

Why consider a mortgage loan?

Mortgage loans are computed up to 70% of the property’s market value at the time of application. Such as is done with home purchase loans, the property and the applicant’s credentials are thoroughly vetted before the approval is granted. The paperwork for the loan is straightforward and hassle free. The lender issues a list of documents required to be submitted with the application form – these include the applicant’s antecedents, monthly income, credit history, property papers, etc. Like with home loans, the borrowed sum is paid back via EMIs.

Mortgage loans are more affordable than personal loans, but slightly more expensive than home purchase loans. The home loan rates are normally in the range of 9% to 10.5% (these have reduced after demonetisation across banks and financial institutions), while mortgage loans may have interest rates of 12% and higher. However, lending institutions are more amenable about granting mortgage loans, since the property credentials have already been established. Thus, the turnaround time from application to disbursal is lower as compared to other loans.

The applicant is also likely to get a higher loan amount when applying for a mortgage loan. Make sure to use a loan EMI calculator to get an approximation of how expensive the EMI will be. When taking the loan, you must check for the interest rate being offered, the lender’s repayment terms (if foreclosure fees are charged, for instance), processing charges, etc. 

Lower Interest Rates: A Reason to Look Forward To 2017

The most eventful year in recent years has finally come to an end. And if you think that Donald Trump as the US President, Baahubali: The Conclusion, Deepika Padukone's XXX: Return of the Xanger Cage and even Priyanka Chopra's Baywatch aren't enough reasons for you to look forward to 2017, there is exciting news for those who are still to buy their own home in India.

Despite demonetisation, weird weather conditions and growing hostilities between India and Pakistan, 2016 laid the foundation of some much needed reforms for a brighter future for the country, in which curbing black money and a push towards a cashless economy top the list.

What's New in the Housing Sector?

The Modi government is mulling a new scheme to boost the housing sector which will be announced in the 2017 budget. This scheme may use the money from the demonetization drive. A news article published in The Financial Express on November 29, 2016 says that the new housing scheme will have just 6-7 % home loan interest rate. There are prominent chances that banks and home finance companies will find room to lower loan rates as well, in order to encourage people to buy homes.

Need for Lower Interest Rates

Interest rate is the cost of borrowing money or simply compensation for the risk of lending money. Lower interest rates make it cheaper for the customer to borrow, encouraging spending and investment.

In theory, here is what lower interest rates can do:

• Lower Interest Payments: Decline in the interest rates means lower housing loan EMI, which in turn means that the borrower's monthly cost of mortgage repayments decline, leaving the householders with more disposable income. This should cause a serious rise in consumer spending.
  
  
• Stimulates Economy in Recession: It is known that during a recession, the RBI lowers the interest rates to entice customers to purchase more credit products and loans. This activity helps to boost and stimulate the economy. It is an economic mindset that people buy homes and automobiles when rates are low.
  
  
• Increased Demand for Products and Rising Employment: As economic activity picks up, demand for products increases. And in order to meet the demand, companies hire more workers. This activity can create more jobs and put a full stop to the surging unemployment rate.
  
  
• Boost in the Price of Shares: In the lower interest rates period, assets like shares, bonds and assets become relatively more attractive, and people tend to buy shares that offer a better rate of return than saving their hard earned money in a bank.

Banks, home finance companies and people are eagerly waiting for what the 2017 budget holds in store for them.