A home equity loan is an advance issued against the market value of a property minus the outstanding dues. However, the residential property should be a constructed development with a clear and marketable title. To find out more about the terms and conditions for availing a home equity loan in India, read on further.
Residential investment is considered as one of the best investment decisions not only because it ensures higher capital returns but also because it can be used to support various financial needs in future. For instance, you can mortgage the property to raise funds for college education fee, medical bills or to start up a new business. However, it is essential to know which loan to avail. Presently, Indian banks and Housing Finance Companies (HFCs) offer a whole gamut of loan options against real estate properties. In any case, the majority of the advances think of a condition that the obtained sum ought to be utilized distinctly towards the property under inquiry, for example, acquiring or redesigning and fixing the property. In the midst of this, a home value credit comes as an ideal alternative for the individuals who wish to profit assets to take care of different liabilities.
A home equity loan permits you to borrow a considerable amount against the value of your house. Moreover, it is a secured loan; therefore, the loan approval process is hassle-free and quick.
Features of a home equity loan
Owner’s equity in a property: As the name suggests, a home equity loan is an advance issued against the owner’s stake in the residential property, i.e. the current market value of the property minus the outstanding liabilities. The liability here may include a home loan or any other ongoing loan on the property.
For instance, if the property value is Rs 40 lakh and the outstanding home loan is Rs 15 lakh, then equity will be-
Equity = Rs 40, 00,000 – 15, 00,000 = Rs 25 lakh.
Here, Rs 25 lakh will be the equity amount against which the owner can potentially borrow.
Property type: Home-equity loan is granted only against a constructed property. Moreover, it should be a freehold development, having a clear and marketable title.
Purpose: Borrower can use the home equity loan for various purposes such as financing education, nuptial expenses, medical expenses, or even refinancing a home.
Tax benefits: It does not offer any tax benefits on repayment as available to the borrower in the case of a home loan.
Interest rate: The interest rate on home equity loan is lower than a personal loan as it a secured loan. Lenders can take possession of the property in case there are any payment defaults.
Types of equity loans
There are two types of home-equity loans
Fixed-rate mortgage: In this type of loan, bank transfers the entire loan amount to the borrower’s account in a lump sum, and the repayment is made over a predefined tenure at an agreed rate of interest.
Home equity line of Credit: Here, the bank issues a cheque book or a credit card to the borrower that facilitates loan withdrawals as per the use and convenience of the user. The operations are similar to that of a credit card. In terms of repayment, monthly instalments are fixed at an agreed rate and for a pre-discussed period.
How to increase real estate equity?
While the gratefulness in the capital ‘asks’ or the decrease in the exceptional credit sum increment your value share in the property, there are different approaches to intensify your stake. For example, home enhancements and standard support assume a noteworthy job in improving the market estimation of the property. Put resources into your home to build its incentive by overhauling the kitchen, washrooms and home insides. Paint the property and attempt all the pending redesign and fixes before the bank authorities direct a home examination process and evaluate the market estimation of the property.
Moreover, consult multiple financial institutions to compare the interest rates and the sum offered against your collateral. Besides, if you are already servicing any other loan, then, maintain a good credit score as it would also improve your chances of a higher loan amount.