Type of mortgage loan

Which type of mortgage loan is Best For You?

When we mortgage our property to borrow funds then a simple question raised in our mind ? That what we can assess after negotiating on rates, tenure & amount of mortgage loan … The answer underlying is on the question of use of funds…

Borrowing smartly is very important for successful closure of the deal & also achieving competitive terms. Below are the various uses elaborated with underlying important points to be considered while formally entering into mortgage deal-

Business Expansion:

Business expansion is the most prominent factor for borrowing funds through mortgaging property. The quantum of required funds, repayment tenure, cash flow during the repayment tenure & terms of pre-closure are some of the important aspects to be assessed while finalizing any mortgage deal.

Funding for factory building construction, buying of machinery & long term working capital should be taken on monthly EMI repayments. All these investments are of long term use & one-time expense on asset creation so repaying it gradually is best use of surplus cash generated through yearly depreciation fund. All EMI based property loans are termed as loan against property (LAP), commercial property loan or residential property loan.

However the short term working capital requirements should be met through overdraft (OD) / cash credit limit (CC limit) facility. This kind of facility provides option of repayment on immediate basis as & when surplus funds available in business. The short term working capital is required to mature some irregular contracts & funds got surplus once the debtors pay back their dues. Short term funds need to be kept in abeyance till fresh such orders received so if these are borrowed funds then it should be borrowed as OD / CC limit to use surplus funds for repaying the dues on immediate basis & borrow again when fresh order received.

Property Buying:

Borrowing funds for buying property (Home / Factory) needs to be assessed from the perspective of available options from lenders. There are some schemes running out from Govt / builders for selling their units & assessing mortgage deal in totality will result in higher benefits i.e. sometime a lender gives some discount on rate but the lender has not approved the project yet then it needs to put more time & efforts in maturing the mortgage deal compared to a lender who has already assessed the project & offering mortgage with predefined terms gives better understanding on cost of borrowings

Personal Emergency / needs:

Sometime borrowings are necessary to meet exigency of life or some urgent needs which require big chunk of money & better not to disturb the regular cash flow of the business. To meet such emergency a loan against property helps to overcome such needs.

Reverse Mortgage Loan:

Specially designed for retired individuals, a reverse mortgage works precisely the opposite of mortgage loan. The individual needs to keep their property as a mortgage with the bank or with the NBFC. The lender then pays them a steady amount of income every month like EMIs.

Consider the Pro & Cons of deal:

It should be clear from above discussion that right kind of borrowing on mortgaging the property has various such factors which are important to make or break the complete borrowing idea. Borrowing funds should be assessed in all respect. The important part of discussion is that it can’t be termed a clear cut mode of execution.

It is advisable to have expert advice before opting any mortgaging deal. Understand the cost factors not only written on loan agreement or stated on the face of the deal but also cost of funds during ideal period & prepayment cost & cost of re-borrow when fresh requirement arise.

In net shell one should avoid borrowing against mortgage when you can’t afford the repayment obligations. The borrowed funds should be repaid in defined timeline & cash flow for repayment is reasonably predicted before borrowing.

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