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Mortgage Home Equity

One can avail Home equity loan against a residential property. They can be arranged and availed easily and repayable in easy monthly instalments. The terms of the loan can be controlled according to the borrowers specific needs and requirements.

By and large immovable properties are required to be illiquid. Whenever we need funds, we need to dispose off the property or arrange funds from various sources by shelling out huge money on interest alone. However, Disposing off the property is time consuming and cumbersome. Home equity loans solve such problem of illiquidity. Home equity loans convert this illiquid property into a quasi liquid property. The biggest advantage to the owner of the property in case of Home equity loan is that he can retain the ownership of the house and get finance by offering the property as a security for the loan amount. In this way he can unlock the liquidity in the immovable property and he need not dispose off the property in turn to get funds.

The same time, he does not need to separate with the property. As a result, the ownership as well as the sentiments or emotions related to it are not adversely affected. The owner of a house property will be in a position to meet his funding requirements by mortgaging the property. The advantage in this case is that the borrower, the owner of the property, can use the funds as per his requirements and the purpose for which the funds were borrowed is not monitored by the lender. It is to be mentioned here that in no circumstances the funds should be used for speculation.

The loans will be granted against freehold or leasehold properties. However, the property should have a clear and marketable title. The loans will be generally allowed to repay on an EMI basis or on a simple interest basis. In the majority cases, loans will be approved only in respect of building block that are self occupied. Rented properties are not covered under the scheme.

Generally, banks will allow loans upto a maximum of 40 percent of the market value of the property including the cost of the land. Even the market rate of the property will be fixed by the Banks after getting the survey done by the registered surveyors. Normally the banks will quote slightly lesser rate than the prevailing market rate. Different banks have different maximum and minimum limits. The Reserve Bank of India has been cautioning banks against the margin requirements required for such type of loans, considering the present boom in the property prices.

Any loans against artificially inflated property values increase the risk exposure of the bank. For the bank, the security in terms of the property should be adequate enough to cover the loan and the interest part, in case one needs to do so. The repayment tenures also vary and may extend upto 15 years. The loan amount will be determined on the basis of the repayment capacity of the individual taking into consideration various incomes of the individual. The value of the property should have enough margin vis--vis the loan amount. All Other terms and conditions of a normal housing loan apply in such loans.

These loans can be availed individually as well as jointly. Owners of a property, in respect of which the loan is being sought, will have to be co-applicants. However, the co-applicants need not be co-owners. The Bank will ascertain the market value of the residential property. The valuation could also be carried out by a government approved valuer or external agency acceptable to the bank.

Till the time the loan is not repaid, the owner cannot further mortgage, sell or transfer the property to anybody else without the prior permission of the bank to which the property has been mortgaged. Once the loan is repaid, the mortgage is cancelled and the borrower will again regain complete control over the property. The security for the loan is a first mortgage of the property against which the bank has advanced the loan. In addition, the bank may some times request for additional security. Instruments like shares, bonds, jewels, NSC, insurance policies, fixed deposits etc., will be accepted to the banks as additional securities.

Joint Opment a Second Option to the Owner:

Especially in the fast-growing cities like Bangalore, Chennai, Mumbai, New Delhi etc., Joint Development of property has now become a popular mode of development of property. Individuals owning a site and a developer come together and enter into an agreement to jointly develop a property. This way the resources are pooled for the mutual benefit of both.

If the owner of the property decides to develop the land property on his own, he would have to arrange for funds on his own or through financial institutions, look for a builder, monitor the construction and go through all the tough procedural formalities. Similarly, in case a developer wants to develop a property on his own, he needs to get a good site in good locality. With the increasing demand for properties and rise in property prices, the cost of land forms a major portion of the cost of construction. It is difficult to get finance for the entire cost of a site. The builder would have to block a major of portion of funds for getting a site itself, before he can get any returns.

Therefore, the other option of joint development of property saves on all these needs for both the parties. Both by small and big builders, without exception, are following this. The builder and the owner of the site develop the property or a site on a joint venture basis. The owner of the land enters into a joint development agreement with a builder. The land is provided by the owner. The builder constructs the flats. A definite percentage of the area is reserved for the owner of the site. The site owner is entitled to dispose off the constructed property delivered to him under the joint development agreement. The owner may decide to retain his share of built-up area or may sell of the flats at any later stage without any involvement of the builder. The builder sells off the balance flats directly.

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