A mortgage loan is a secured loan that you can obtain by mortgaging an immovable asset to the lender. A residential or commercial property, as well as other immovable assets, such as heavy machinery, can be used as the asset. Mortgage loan interest rates are significantly lower than unsecured advances.
This form of loan is secured on the borrower’s property through the mortgage origination process. These are long-term loans with repayment terms ranging from 15 to 20 years. The loan amount can be used to satisfy a variety of financial needs, including large-ticket purchases.
A mortgage loan can be used for personal expenses, such as weddings, higher education, business travel, medical emergencies, or any other unexpected costs. As a kind of liquidity financing, a secured overdraft may be permitted. Customers can also apply to take over existing loans from other banks to benefit from cheaper mortgage loan interest rates.
Types of Mortgage Loans Available in India
1. Property as collateral for a loan (LAP)
The term “loan against property” (LAP) refers to a loan secured by real estate. Loan against property rates vary from service to service and these loans are available for both business and residential buildings. To obtain these loans from lending organisations, borrowers must mortgage their property. Property loan interest rate for mortgage loans is relatively less and these loans are given typically for up to 15 years
- Second Mortgage Loan
Second Mortgage Loans are available from banks and non-bank financial institutions (NBFCs) for properties that are already financed. If a borrower buys a home with a loan today, he can use the same property to get a second loan for personal reasons.
3. Reverse Mortgage
In India, a reverse mortgage was recently introduced. It is a unique loan designed just for senior persons. Many senior individuals do not have a consistent or appropriate monthly cash stream. Many of them, though, own real estate in some form or another. As a result, they have the option to do so.
- Commercial Purchase
Businessmen and entrepreneurs frequently use commercial acquisition loans. They use these loans to purchase commercial properties, such as a shop, an office building, or a business complex. For such items, this loan is ideal.
- Rental Discounting on Lease
It is fairly typical to lease our own residential or commercial property. Leasing properties can also be used as collateral for mortgage loans.
5 Things to Keep in Mind Before Choosing a Mortgage Loan
- Indian citizens (both residents and non-residents) with a steady source of income and non-agricultural (residential, commercial, or industrial) property can apply for mortgage loans.
- The minimum age is 18 years while the maximum age is 75 years for such loans
- Individuals may apply individually or in groups with other eligible people.
- Processing and other fees: Processing fees and other expenses are key expenses that borrowers typically overlook when calculating the cost of a loan. Some lenders may charge service fees, prepayment fees, and statutory fees, in addition to the stamp duty you must pay to obtain the loan under state regulations. As a result, you must factor in all of those fees when calculating the true cost of the mortgage loan. Such fees may appear insignificant, but they can have a major impact on the cost of obtaining the loan and your capacity to repay it.
- Interest rate: The mortgage loan interest rate you’ll pay on your property loan will depend on a variety of factors, including your income, loan size, term, and credit history, as well as the banking institution or lending service you choose. If you’re thinking about taking out a mortgage loan against your home, be sure you’re getting the best deal possible for your asset since LAP loan interest rates tend to vary. You’ll need to put in some effort to discover a bank or lender that will provide you with a reasonable interest rate. While tiny variances in interest rates may not appear to be significant, they might have a significant impact on your capacity to repay the loan in the long run.
- Choose a shorter time frame: For the same loan amount, the EMI per lakh is lower for a longer-term and higher for a shorter term. However, the interest expense, often known as the interest burden, is the polar opposite. The total interest burden will be considerably high if you keep a longer tenor to keep EMIs down. To keep interest costs down, get a loan with a shorter term.
- Choose a new lender or bank that can provide the finest experience: Speak with the new/mortgage lender’s clients to learn about their service experiences. This will help you avoid unpleasant situations in the future.
Including these few imperative points in your decision making process about which lender to chose before opting for a mortgage loan will benefit you in long term. Hence, you must do proper research before opting for the same.
13 Most Important Things To Know Before Investing in Bank Fixed Deposits
Bank fixed deposits are among the most popular investment choices. These investments instruments are common in India due to the liberty of choosing the interest payout frequencies, guaranteed returns, flexible tenures, safe and secure transactions, ease of execution and many other benefits. But there are also things to be careful about before investing in bank fixed deposits. Here is a list of 13 things you should know before you start investing in bank fixed deposits.
Choose net banking while depositing your money
It is best to choose net banking while dealing with fixed deposits because when your account matures, it will directly be credited to your account without any delay or hurdles. Also, in case of emergencies, you can redeem it instantly.
Know the maximum and minimum deposit limit
The government and private banks usually have different minimum deposit limits. For example, The minimum SBI fixed deposit amount is Rs. 1000. Private banks like ICICI have a minimum deposit amount of Rs. 10000 for its general customers and 2000 rupees for minors.
On the other hand, HDFC has a minimum deposit amount of Rs. 5000, which is lower than SBI fixed deposit but higher than ICICI.
Know the frequency of interest payment
Generally, interests are cumulatively paid on maturity of FD. But for regular income, one can change the frequency of interest payout to monthly, quarterly and yearly.
Decide on compounding interval
Generally, fixed deposits are compounded quarterly in all the banks by default. Interest rates differ when interests are compounded daily, monthly, quarterly, half-yearly and yearly.
Know the Interest Rates
- The interest rate charged on FD for specific citizens is generally higher than others. For example, SBI fixed deposit, PNB fixed deposit and ICICI fixed deposit provide an extra interest of 0.5% to the senior citizens. To be eligible for Senior Citizen, one must be 60 years or above at the time of opening a fixed deposit.
- For employees working in a bank and retired employees from the bank also enjoy the extra interest in their bank fixed deposits. For example, ICICI provides an extra interest of 1% to its employees and ex-employees on a domestic deposit of less than Rs. 1 crore.
- In some cases some citizens enjoy both the interest of senior citizens and staff and get additional interest rates than others.
Know about the different tenures of bank fixed deposits
Generally, the tenure of fixed deposits in most banks ranges from 7 days to 10 years. But some banks like the IDBI Bank and Ratnakar Bank offer a time period of 20 years. It is imperative to note that in IDBI Bank, the deposit for a tenure of 20 years allows regular payouts only and is not cumulative like in the other bank options. International banks like Citibank, Deutsche Bank, on the other hand, offer tenure of 5 years only.
Decide What to do After your FD Matures
After you open your bank fixed deposit account, you need to decide what to do with the money after it matures. If you do not give any instructions in the beginning, the fixed deposit is renewed by default. However, if you decide to do something else with the money, you can choose one of three options:
- You can choose to credit both the principal and interest in your interest.
- You can choose to credit the interest and reinvest the principal in your FD.
- Or you can re-invest both the principal and interest.
Know the benefit of partial withdrawal
An important characteristic of fixed deposits is that some banks provide the feature of partial withdrawals. In times of need, an individual with a fixed deposit of 10 lakhs may opt for a partial withdrawal of Rs. 1 lakh. The bank would keep Rs. 9 lakhs with the original terms and conditions and would break only Rs. 1 lakh. Banks like ICICI provide partial withdrawals in units of 1000 rupees.
Choose your nominee
Bank fixed deposits allow you to choose nominees, which allows you to choose different nominees for different fixed deposits.
You can take loans against FD
Getting loans against FD is possible in the form of overdraft facilities. The interest rates of such loans are 2%-3% higher than the FD interest rate.
Know about the taxes on fixed deposits
For filing income tax returns, income from fixed deposits is counted under “Income from other sources”. Interest income is taxed according to the income tax applicable to different individuals. If the FD is shared jointly, the tax liability lies with the first holder.
Know about tax saving FD
Under section 80C, there is a special category of fixed deposit which specialises in tax saving scheme. However, in this FD, one cannot break the deposit before maturing or take loans.
Beware of losing money in FD
DICGC (Deposit Insurance and Credit Guarantee Corporation) ensures that the fixed deposits in banks are insured. The insurance is limited to Rs. 1 lakh per bank account holder. Through this insurance, you will get only 1 lakh rupees. So, it is wise to invest in government banks and other big banks that are unlikely to shut down and keep your money safe.
Fixed Deposits are one of the safest investment options. You can rest assured of the returns. However, compare all FDs available before selecting one.
Know Which Lender offers the Best Gold loan Rates and What Factors Influence Them
The credit lending ecosystem has grown exponentially amidst the increasing demand for big-ticket loans in India. Despite undergoing a massive economic crisis, India’s financial system has experienced substantial growth owing to individuals’ inclination towards secured credit facilities like gold loans.
One of the major reasons behind the growth of this particular sector has been the low-interest rates offered by the best gold loan providers. These rates generally range between 7% and 29% and vary across different lenders, depending on certain factors. Financial institutions such as Bajaj Finserv offer moderate interest rates against the best gold loan facilities.
Nonetheless, before going ahead with the loan application process, individuals should know about aspects that influence these rates.
Factors determining gold loan interest rates
Among all the asset-backed credit facilities, gold loans get more preference due to their easy disbursal process, making it a prudent choice during a financial crunch.
However, when it comes to gold loan interest rates, applicants still need to take a few pointers into consideration to make the process affordable.
- Loan amount
Due to its secured nature, a gold loan does not come with a risk of massive financial burden. However, the loan amount still requires considerable attention because of its role in determining interest rates.
Note that the principal amount is decided by the total value of your pledged gold assets, and the purity of gold is expected to be 18K-24K. This is why it is important to evaluate the purity of your gold ornaments before submitting them as collateral.
The surge in gold prices in India (nearly Rs.4,000 per gram, reported in April 2021) has been beneficial for borrowers as it helps them to availof a sizeable loan amount.
Keep in mind that the interest rates also increase with the loan amountin such cases. So, compare gold loan schemes before choosing one.
- Monthly income
Even though the eligibility criteria are not stringent in the case of secured loan variants, some basic aspects are still assessed by lenders to avoid the unnecessary hassle of repayment failure.
Among them, your income stability plays a significant role as based on that, financial institutions decide the rate of interest.
To avail of the best gold loan rate, make sure you have a steady monthly income. This will help bear the EMIs conveniently for the entire loan tenor.
- Credit profile
Your entire credit profile consisting of the repayment track record and CIBIL score is another key aspect to pay heed to while checking the eligibility criteria for a gold loan. The three-digit numeric summary representing your creditworthiness helps lenders examine your repayment capacity and levy interest rates based on that.
To get the best gold loan interest rates, consider working on aspects that influence your credit history. As a matter of fact, making timely payments, keeping tabs on the credit report, etc., help borrowers to achieve that.
- Benchmarking methods
Financial institutions generally follow two kinds of benchmarking methods in the case of gold loans, such as repo rate linked rate (RLLR) and MCLR linked lending rate. Note that the rate of interest keeps changing across lenders depending on the benchmark regime they follow.
While looking for best gold loan schemes, make sure to check the benchmarking method each lender follows as the interest rate will be influenced by that.
Apart from these aspects, your chosen repayment tenor also has a vital role to play in deciding the interest rate. Therefore, choose your repayment schedule wisely before applying for a gold loan and save yourself from hefty EMIs.
Further, to manage all your financial liabilities properly along with monthly instalments, you should look out for the following pointers too.
- Processing fees
Some financial institutions impose additional charges of up to 2% while processing the gold loan application. It is expected that these charges are bound to increase in the case of high-value gold loans. Few lenders also levy charges on loan foreclosure or part-prepayment.
- Loan disbursal time
Due to the simple documentation process, the funds get disbursed within a few hours to days, depending on your preferred lender. On top of that, keeping all the required documents prepared and meeting the basic eligibility help to expedite the process and gather funds to tackle emergency situations easily.
With easy access to internet facilities, such information can be easily obtained from lenders’ websites. Along with that, the interest rate is also mentioned to help you make an informed decision while choosing thebest gold loan provider.
5 Basic Differences Between a Personal Loan & a Home Loan
What is a Home Loan?
A home loan has a precise purpose related to a house. It can be the purchase, renovation, or construction of a property. We all know that it is a significant expense to purchase a property. Everyone doesn’t have that kind of amount with them at once to spend.
Therefore, they take a home loan and pay the bank or the financial institution in Equated Monthly Instalment (EMI).
What is a Personal Loan?
A personal loan can be taken for various purposes. It can aid a cash crunch or help fulfil a goal where you need some money to be infused. The common reason why people take personal loans are travelling, marriage, higher education, medical, or any other kind of emergency. It is also paid via EMIs.
There is a vast difference between a personal loan and a home loan apart from the basic purpose. Let us explain the 5 fundamental aspects of the personal loan vs home loan in detail in upcoming sections:-
1. Loan Amount
A personal loan is taken to fulfil a minor requirement of cash. Say for a holiday, renovation, or an expensive phone. Thus the loan amount for a personal loan typically ranges from 50 thousand to 25 lakhs. The loan amount depends on the credit score of a person.
On the other hand, a home loan is taken for a significant amount that ranges from 5 lakhs to 10 crores. It depends more on the value of the property rather than the credit score. 80% of the value of the property can be taken as a loan by an individual.
2. Rate of Interest
Personal loans are known for their convenience but also higher interest rates. Its basic rate of interest ranges between 11-25%. A poor credit score or longer tenure can eventually raise the interest. One reason for its higher interest rate is that it is an unsecured loan.
Home loan interest rates are lesser than the interest rate for a personal loan. The usual rate is 8-12%. The tenure for the loan is of many years, and it’s a secured loan. So the interest rates are lesser than personal and many other loans.
3. Loan Repayment Tenure
Personal loans are provided for a short-term period. Its tenure ranges from 12-60 months. But generally, institutions prefer a short time period, for example, 6 months. One reason for giving personal loans for smaller tenure is that lenders don’t want to risk their principal sum by lending for a longer time.
In contrast, home loans are given for even 30 years of tenure. The amount is more in the home loan case, and the risk is minimal as the loan is secured through the mortgage. So institutes are generous in providing longer tenures for repayment of home loans.
4. EMI Amount
The amount of monthly instalment for the same amount can be more in a personal loan. The reason is that a personal loan is given for a limited time for a maximum of 5 years period.
In the case of the home loan, the EMIs are spread out for many years. Thus it becomes easy to minimise the EMI amount. Therefore it won’t be easy to purchase a property with a personal loan instead of a home loan.
5. Tax Rebate
Under section 24 of the income tax act, a certain type of buying, construction, and renovation through personal loans comes under tax rebate. Other than that, there is no tax relief for the repayment of a personal loan.
Home loan repayments fall under tax deduction through sections 80C, 24, and 80EE of the income tax act. Banks can charge up to a maximum amount of 3.5 lakhs as interest on a principal amount for a home loan.
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