Has the Rise in Property loan interest rate made You Hesitate as a First Time Homebuyer?

The rise in homebuyer Property loan interest rate is something that a lot of people are talking about. The looming question is: could it be the high rates that are stopping some people from buying their first home sooner? The general consensus is that lack of a down payment is what slows most people down the most as the interest rate doesn't really sink in for many first time buyers until the home buyer is ready to renew for the first time. Many just want to get into the market at any cost so they take a home loan with a higher than average interest rate - but if you are entering the home buyers' market for the first time, it is important to seriously consider interest rates.

Are You Serious About Getting the Lowest Possible Property loan interest rate on Your Home Loan?

The interest rate you are able to qualify for will have a direct impact on the quality of the property and your ability to afford the home you want, and of course it will also impact the duration in which you have to pay off the property. Being as informed as possible will save you money and can help ensure you look as good as possible on paper so that you can qualify for a mortgage. Keep the following in mind:

• Your interest rate does not just impact the overall cost of your new home; it affects your mortgage payment, too. It is worthwhile to shop around for the best Property loan interest rate possible. Crunch the numbers to see and assess the difference.

• Try to look as good on paper as possible. One of the reasons that first time homebuyers often pay such high interest rates is because lenders are unsure about their financial stability. A stable income, some savings, and a good payment history make a big difference.

• Keep in mind that you can pay things off sooner by paying more often than monthly. Fortnightly, weekly, or other accelerated home loan payment options can save you thousands.

• You should look above and beyond your local bank when shopping for a mortgage. Talking to a mortgage broker could be a great way to get more options. Mortgage brokers, for instance, can help you check rates from numerous lenders as well as increase your chances of approval if you are in a lo doc or no doc scenario.

• The bigger the down payment you can come up with, the better.

• It is smart to get a pre-approval before you get your heart set on a property. Knowing what you will be approved for gives you more buying power and will lower the chances of disappointment.

Mortgage Brokers Can Help

Do you want more information to help you as a first time homebuyer? If you want to avail of a Property loan interest rate talk to a mortgage broker. They would be happy to help you review your options so you can get a good interest rate for your mortgage.

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Loan against property

A Fair Trade Loan against property

If you need money really bad and if you own your own house then getting a mortgage might be the easiest way out. They then pledge their property as a security against money lent to clear the debts. This option is common in the west where people are keen on buying real estate properties and cannot afford to pay the full amount within a short span of time. Get professional help in understanding your specific mortgage. There are many offerings out there and all are different.

The mortgage company should be authorized and registered before they start handing out Loan against property. So, before buying a Mortgage, make sure to check the following issues:

1. A mortgage is a long term relationship. So, make sure you know all there is to know about the background of the issuers. You must find out how strong they have been, and what their rate of interest is. Then you must compare the same with other companies to know who the best is. Also, look at how many years the company been in this field. Good credit ratings are another plus as they reassure the person in need of the loan.

2. After checking the issuing company's background, focus on getting all the information you can lay your hands on. The duration and the rate of interest applicable will matter. Make sure you divulge information pertaining to the other financial commitments you have and the time you might require to pay back the Loan against property. Also check about penalties for delayed payments, or possible options if you want to repay before time. If a company is able to accommodate your needs and provide the suitable mortgage, they are the right choice for you.

3. All promises made to you, including any promises of future flexibility, should be documented. Oral promises are not binding unless proven. If the company refuses to sign a contract, they are not reliable or trust worthy, move on to the next company you find. The written document will be legally valid in case either you or the company defaults at a latter date.

4. Other charges that might be applicable from time to time -- If you are able to repay the loan before the stipulated time, the mortgager will charge a redemption penalty, so make sure to have that mentioned in the agreement. In the zeal to make a sale, your agent might actually have "forgotten" to tell you about some specific charges.

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Essentials of Loan against home and should you go for it

Among a host of loan options provided by banks, a relatively popular product is the Loan against property or mortgage. The product clicks with borrowers because it generally allows one to borrow a relatively large sum of money for any need. It generally has easy documentation, speedy approvals and flexible repayment options.

According to the Transfer of Property Act, 1882, a mortgage, which is essentially availing a loan against property is "the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, and existing or future debt or the performance of an engagement which may give rise to a pecuniary liability.

This means one can apply for a loan from a bank by extending the property as a collateral or security. However, as the definition states mortgage only involves "transfer of interest" and the ownership of the property remains with the borrower. Ownership transfers to the bank only in the event of default on the loan.

Loan against home or a mortgage is popular because it has some perceptible benefits. Higher loan amounts are generally available for longer tenure when compared to conventional loans, and at a discounted interest rate. Most banks accept both residential and commercial properties for mortgage.

To fulfill the eligibility criteria banks generally demand proof of residence, proof of identity, latest Bank Statement where you can show a salary / income for the past 6 months, salary slip if employed, and relevant copies related to the concerned property the borrower wants to pledge. If the borrower is self employed, generally the certified financial statement for the last 3 years is needed.

Loan eligibility as usual depends on the borrower's credit rating along with factors like income, age, qualification, number of dependents, spouse's income (if any), assets, liabilities, and continuity of occupation. Once the loan is approved is it either disbursed in full or in installments as instructed by the borrower? The borrower can often choose between fixed and floating rate of interest and generally there is an option for part and prepayment of the loan.

The loan that is extended to the borrower is based on the market price of the property pledged. However, what is important to keep in mind is that a bank always holds bank a certain amount of margin money and they generally extend a maximum of 60 -70 % of the market value of the property. This ensures that the banks are protected against any cyclical fluctuations in the real estate market and a drop in prices.

While people use Loan against home for education and even to buy/build a second property, most mortgage loans are taken for business purposes. This is especially helpful if the business is in need of emergency cash at lucrative interest rates.

It is always risky to put your property at stake, especially if it's your house. This form of loan is also not advisable if you are starting up and there is a substantial amount of risk involved in your business.  Loan against home should not be used as a form of risk capital, but should be used when the borrower knows he would be able to service the loan or repay it before the stipulated period.

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One Loan Plan - Manifold Benefits

As far as unlocking the value of your property is concerned, property sale is not the only option. Mortgage can do the unleashing job for you in the wake of increasing realty price. In the Indian loan market, the option of raising money against property was a choice used largely by the self-employed and businessmen for the liquidity purpose. As the banks in the Indian banking system are getting aggressive in this loan segment, it can be a profitable option even for the salaried professionals. In the recent years, raising finance through the equity of Loan against property too has become much more refined and the interest rates have turned attractive keeping the benefits of the borrower in mind.

A number of banks, particularly private and the multinational are aggressive in this Untapped and unbound loans against home or property. The maximum loan amount that can be sanctioned to the borrower depends on the value of the property and banks are less hesitant when the loan size is below 60 per cent of the market value of the property. Such loans offer the overdraft facility to the borrower. In case of overdraft the interest burden depends on the usage of funds.

Loan against property can also be the profitable option even for those who are looking for their second or third immovable property. Generally, banks do not worry about the end use of the property(whether for rent or sale) and such loans were given to make your presence felt in the highly profitable real estate market. These loans can also be available for funding educational requirements or any other large expenditure . Now, with the increasing competition in this segment and the liberal terms of RBI(it is not wise to count the recent Repo and CRR hike as they are only short term in nature)interest rates showing signs of stability. So the property owners can use this loan option for investing in another property.

The advantage is more so when the prospective buyer falls short of margin money for his purchasing the second property. Besides the property owner, other borrowers in the form of co-applicants too can also use the mortgage option, subject to certain terms and conditions. Another big advantage with the loan against property is that it can be utilized even when a home loan is in operation. For example, if a property owner has taken a home loan for the purchase of an immovable property with a tenure of 10 years, he can re-mortgage the property with the same bank for utilizing the loan later.

No doubt, mortgage loan too is a Loan against property but it cannot get any tax benefit for the borrower. The income tax benefit under Section 24 is confined to the home loans only. However, the interest component may increase when the borrower is not a salaried employee. Borrowers would be better off if they keep an eye on their repayment capabilities before going in for the loan against property. Analyze different components of the loan and then go for the loan plan according to your need.

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Loan on property Investment

The main topic for this article is property investment. As we know, banks have progressively tightened their lending criteria in the wake of the GFC, investors are getting frustrated because they can't source finance for their next purchase. In this article, I will discuss about ways to break through the credit ceiling and increase our serviceability limit.

The first step which is consolidates unsecured debts into your mortgage. Typically, unsecured debts such as credit cards and personal loan have short repayment period. This method is use to force us to reduce our debts with high cost monthly repayments. These high repayment levels will cause the bank's ability to repay calculation for our mortgage. The reason is because unsafe debt will limits the amount of uncommitted funds we have available to repay the proposed mortgage. Rolling our personal loan and other debts into our mortgage can help us because they won't show as other financial commitments. Anyway, it will stretch the debt over the life of your Loan on property term, creating more interest in the long run.

The second step is by reducing excess credit, especially Loan on property. It is believe to say that if we have any credit cards with limits that exceed our need for credit, action that will be received either cancel the limits or reduce the limits down to a manageable level. When there are lenders assess our ability to repay a mortgage, they might assume that our credit card will be fully drawn up to its limit.

For knowledge that most credit card supplier make a statement that three percent of the debt amount be repaid every month, the unused limits can be detrimental to your mortgage borrowing capacity Loan on property. Every $100 in credit card limits adds $3 per month to our monthly expenses and reduces our ability to borrow.

It may sound very good but all the lenders will look at the credit limit on our card or cards as a liability that we may have in the future, even if we don't owe a solitary cent currently.

Currently, if we have a card with an $800 limit and another with a $400 limit, a lender will write down $1200 as a debt under our name. Reducing our credit card limit by $1000 may increase your calculated monthly disposable income by $30, which has the effect of having a net pay rise of $360 per annum."

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All Purpose Loan - Loan on property

Loan on property is an all purpose loan. A loan can be taken for any purpose in the time of financial emergency.  There is personal loan but it is tagged with a high interest rate along with short loan repayment tenure. Therefore many people are not able to take personal loan. If you own a house you can take loan against and it turns out to be cheaper than a personal loan. The reason behind this is the lender has the mortgaged property as security with it therefore there is no tension of defaulter of loan amount. While in the personal loan there are no such security norms.

The Loan on property has a long repayment period, generally 10 years. The loan can be taken for any financial requirement whether it is for funding of the existing business in case of debt consolidation, any emergency, education, marriage or other constraints. In case of personal loan you have to specify the reason for taking loan but in this loan there is no such rule but if your loan amount is Rs 25.00 lacs and above then you have to specify the purpose of the loan.

For instance the country's largest public sector bank SBI has a clause that the loan can be taken for any purpose what so ever. In case the amount of loan is Rs 25.00 lacs and above then purpose of loan will have to be specified along with an undertaking that loan will not be used for any provisional purpose whatever including speculation on real estate and equity shares.

Some of the banks give the loan against both types of properties whether residential or commercial but some of them give loan against only the residential property. The loan amount can range from Rs 10 lakhs to Rs 3 crores, though the amount varies from lender to lender.

Some of the banks offer special schemes along with this loan like free personal accident insurance cover.

To get this loan you must be above 21 years of age and the maximum is 60 years, whether salaried of self-employed. For instance the largest public sector bank the State Bank of India has the following eligibility criteria - an individual who is: an employee or a professional, self-employed or an income tax assesse or engaged in agricultural and allied activities. Bank has fixed the maximum age limit to 60 years.

Though, some banks have fixed the maximum age limit for self-employed individuals to 65 years. The salaried applicants should be employed continuously for at least three years.

Documentation

Self-employed individuals can submit computation of income for the last two years certified by a charted accountant.

In this Loan on property there is a facility of an overdraft. Some banks offer this facility. The big advantage of taking this loan using the overdraft option is that the borrower has to pay the interest only on the money withdrawn, till the time loan is repaid.

While in the normal course the interest is paid on the entire amount throughout the tenure of the loan.

Before finalizing a bank check for the fees and penalties. Banks charge processing fees - is the amount charged by banks to cover the cost of processing your loan. The amount range varies from bank to bank. The fee amount is generally between 0.25 to 2%. The foreclosing of the loan before the actual tenure carries prepayment penalty.

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