Home Loan Vs Home Equity Loan
A home loan is generally termed as first time home buyer loan when the buyer is purchasing the first property with it. In order to get a home loan, you need to be a citizen of India, above 18 years and have a fixed and regular income to repay the loan on https://vbslendumo.com/. The loan can be of two types – secured and unsecured. For the former type, you need to keep collateral as security against your loan. In case of any default, the lender may take possession of the property. For an unsecured loan, you need not keep any collateral. However, after the recession of 2007, very few lenders offer an unsecured home loan. The loan tenure is generally between 15 years to 30 years. The buyer can opt for a fixed rate mortgage or an adjustable rate mortgage.
Home Equity Loan – An Overview
Home equity loan enables a property holder to get a cash loan against the existing property. The property holder needs to keep the home as collateral or security. In case he fails to repay the loan, the lender would take possession of his home and resell it to recover the money.
Generally, a home equity loan or loan against property can be taken for the following purposes:
- Medical expenses
- Education expenses
- Marriage expenses
The property against which this loan is offered can be a residential or nonresidential one. The real estate property can be a fully constructed one or a vacant property having marketable and clear title.
EMI for adjustable interest rate: If an individual opts for adjustable rate at an interval of three months, the interest rate will be revised. The revised rate of interest will start after 3 months from the date of 1st disbursement. However, the monthly payment on the home equity loan disbursed will remain the same. If there is an increased interest rate in the market, the interest part in the EMI will increase but the principal part will decrease. As a result, the loan tenure would become extended. Likewise, if there is a decreased interest rate in the market, the interest part in the EMI would decrease and the principal would increase, thus shortening the loan tenure. At present, the interest rates for fixed rate with a loan amount up to INR 1 crore is 12.5% and for variable rate is 12%. For a property whose value is equivalent to or more than INR 1.01 crore, the fixed rate of interest is 12.5% and variable is 11.75%.
Loan amount: In India, the banks offer 50% to 85% of the current market value of the property to new customers. If the individuals are repaying the bank for another home loan, the loan offered is the difference between 60% to 85% of the current market price of the property and the outstanding loan amount. However, the loan offered will be subject to repayment capability of the individual and the minimum market price of the property should be INR 5 lakhs (for residential property) and INR 7.5 lakhs (for nonresidential property).
Features of HEL (Home Equity Loan)
For getting approval for this loan, you need to furnish the necessary documents to substantiate your income and repaying capacity. Your property needs to be appraised by a qualified professional. You also need to provide proof that a minimum of 20% of the home value is paid off. Depending upon your credit history, private lenders may offer up to 90% of the current home value, provided you meet their terms and conditions.
- Is home equity loan a second mortgage?
Ans. Second mortgage is a type of home equity loan, but the latter can be more aptly described as HELOC (Home Equity Line of Credit). However, there is a fine line of difference between a HELOC and HEL (Home Equity Loan). If you go for a second mortgage, you will get a fixed sum of money that is to be repaid after a certain period. Second mortgages are generally offered on fixed rate of interest and the loan tenure is 15 years to 30 years. For a HELOC, lenders will first calculate the current market value of the property, starting at 75%. Then they deduct the outstanding loan balance owed on the 1st mortgage. Suppose, for buying your first home you had taken a loan value of INR 1 lakh and you have paid till now INR 40,000. Then, the lender will calculate the second loan amount on the remaining INR 60,000 and the market price of the home. It is advisable to consult a professional to decide what would be the best loan option as per your present financial requirement – second mortgage or HELOC.
- When does an individual opt for HELOC and second mortgage?
Ans. If an individual requires money for one-time expense like wedding arrangement or repairing or renovating a room, then he should opt for a second mortgage that has a fixed rate. However, if the expense is a recurring one like education fees per month, business expenses, and medical fees, then it is beneficial to go for a home equity loan. Nevertheless, you need to consult a financial advisor to determine what would be the best option for you.
The bank will likewise check the borrower’s credit report. A credit report is an itemized record of a person’s previous credit (so, getting) exercises, regardless of whether as advances or different obligations (cash owed). In the event that the imminent borrower has an awful financial record, the individual might be ineligible for a vehicle advance.