Just like you enjoy that extra topping on your pizza, you can enjoy me on your home loan. I am the additional loan to a home loan that a bank will give you against your house. You can get me as a top-up, provided you already have a home loan running with a lender. Most lenders give me for a term of around 10 years.
How much I give?
You can get up to 70% of the market value of your house as a loan; the exact amount would vary between lenders. But most lenders will look into the current price of your property, subtract the amount you owe on your home loan and then decide on the amount. If the current value of the property is Rs1 crore and you owe them Rs60 lakh, then your may get me for around Rs10 lakh, depending on the bank.
How much interest I charge?
Typically, you would have to pay an interest rate that is 1-2% higher than that on your home loan. For instance, if the interest you are paying on a home loan is 9% per annum, you may need to pay 10-11% per annum on me.
I am cheaper than a personal loan on which the interest rate can be as high as 25% per annum as well as a credit card, which has interest rates up to 40% per annum.
When do you get me?
However, you can get me only after a few years of servicing the equated monthly instalments (EMIs) of your home loan. This means that banks will look at the repayment history of your home loan to assess your creditworthiness before granting me. If you’ve defaulted on your home loan EMIs, it’s going to be very difficult to get me.
Apart from looking at your payment history on your home loan and the market value of your house, the lender will also check your repayment capacity. You should have a substantial income to service the home loan as well as me.
Mint Money take
You should look at me as an option when you need funds for the long term. Don’t seek me when you need money at a short notice for an emergency. Also, just because I am available for around 10 years, you need not opt me for the maximum term. Take me for about three-five years and pay off the loan as soon as possible.
Remember that you pledged your house by signing legal papers to avail me. So, if you are unable to repay me, you may lose your house.