Mortgage loan in India is expected to reach a market capitalisation of Rs.46.1 lakh crore by 2024. This growth reveals an increasing need for hassle-free and affordable funding, which a mortgage loan can fulfil easily. Due to this convenience, several borrowers can opt for not just one but two mortgages on any given property to avail additional financing.
You may be aware of the intricacies involved with the
first mortgage advance such as a loan against property. Still, you should be
aware that you can collateralise the same property a second time for additional
credit.
What is a second mortgage?
An individual availing a loan against property on his/her
residential or commercial property can avail an additional loan by leveraging
this property as collateral. For instance, consider that you are currently
servicing a mortgage loan of Rs.25 lakh with a particular lender. A couple of
years down the line, in case a need for additional funds arises, you can apply
for a second mortgage advance on the already mortgaged property.
Depending on your repayment history and credit score, the
lending institution in question may approve such requests. An important thing
to note here is that the second mortgage loan is generally availed from the
same financial institution as your first one.
Nevertheless, in rare cases, a homeowner can avail
financing from a different lender for this additional credit as well, using a
paripassu agreement.
What is a
paripassu agreement?
‘Paripassu’ is a Latin term meaning ‘on equal footing’. In
terms of a property loan, such an agreement is signed between two HFCs offering
loans on the same mortgaged property. It can occur when the first lender only
provides a small percentage of the property’s market value as credit. For
instance, if the property is worth Rs.80 lakh but your lender extends a credit
of Rs.35 lakh only.
In such a case, a property owner can leverage the
remaining Rs.45 lakh worth and use it to acquire additional funding from
another financial institution. Both lenders must have equal right to the
collateral in these instances, which is why a paripassu agreement is formed
between them.
Still, one needs to qualify for a second mortgage loan by
meeting all of its eligibility criteria. The second financier will consider
your existing loan cycle, repayment history, and additional creditworthiness
before approving or disapproving such a request. To avoid facing rejections, an
applicant must check the mortgage loan eligibility requirements beforehand.
Availing a top-up
loan on loan against property
Borrowers can avoid a second mortgage loan application by
seeking a top-up loan on their existing dues. A top-up credit refers to a loan,
whose proceeds are above and beyond the outstanding mortgage advance principal.
For instance, reputed lenders provide top-up loans of up to Rs.50 lakh to
eligible loan against property borrowers.
Moreover, such lenders also provide pre-approved offers to
streamline and speed up the loan application process. These offers are
available on a range of financial products, including home loans, loans against
property, and more. You can check your pre-approved offer by submitting your
contact information and full name.
In some cases, borrowers may need to undertake a loan balance transfer to acquire a high-value top-up loan. However, keep in mind while transferring an outstanding loan that the new lender should offer a competitive mortgage interest rate. Otherwise, repayment can become burdensome.
Benefits of a top-up loan
If you are still not sure about top-up loans, consider
their following advantages that help amplify the advantages of a mortgage loan
–
● Does
not impact your credit score
CIBIL score for an individual availing a top-up loan
remains unchanged because such forms of credit are not treated as additional
financing. Thus, the borrower does not come off as credit hungry.
● Minimal
documentation necessary
To avail a second mortgage advance, you would need to
complete the documentation process all over again. Fortunately, in case of a
top-up loan, borrowers do not need to undertake this process for the second
time. The lender uses the documents provided during a loan against property
application to sanction such additional credit requests.
● No
end-use restrictions
Borrowers are free to utilise such top-up loan proceeds in
any way they wish. For example, one can use a top-up loan on loan against
property to start a business. Individuals can also utilise the proceeds to fund
other big-ticket expenses.
Still, if you decide to avail a second mortgage advance,
ensure you keep an eye on mortgage loan interest rates. These can determine how
much EMIs you would need to bear for the rest of your repayment tenure.
read more article: 5 Effective Ways a Personal Loan Can Improve Your Credit Score