A home equity loan in India, as the name implies, is the money you borrow on the accumulated or built-up home equity or market value of the home.
Also called the 'second mortgage', the lending product allows you to secure funds against the value of the property minus any outstanding home loan balance. Typically, in India, this loan product is popular as a loan against property.
Say, now if you have a property worth ₹2 crore and the outstanding home loan value is ₹50 lakh, then your current home equity stands at ₹1.5 lakh. Now, lenders considering this value and your eligibility may sanction and disburse some loan proportionately.
Type of home equity loan
Home equity loans are essentially of two types:
Fixed-rate home equity loan: It is a home loan secured by keeping the property as collateral, and here you need to service the loan at a pre-decided fixed rate.
Home equity line of credit: It is similar to an overdraft facility, and the borrower does not get a lump sum amount. The facility works similarly to a credit card, which can be used repeatedly and then has to be repaid as monthly repayments.
Loan quantum you can secure using home equity or a loan against property in India:
The loan quantum that the lender can offer depends on a host of reasons, including property valuation, repayment capacity, credit score, income flow, and loan-to-value ratio as per the policy norms. Usually, banks in India disburse up to 60-70% of the property value as a loan against property in India.
What are the home equity loan or loan against property interest rates across major banks in India?
| Banks & NBFCs | Interest rate |
|---|---|
| SBI | 8.95-10.5% |
| PNB Housing Finance | 8.85-11.05% |
| Bank of Baroda | 8.9-11.5% |
| Tata Capital | 9-17% |
| Axis Bank | 9.15-10.25 |
| HDFC Bank | 8.3-12.75% |
Note: All kinds of home loans are pegged to EBLR.
Other key features of a home equity loan or a loan against property
Banks and other institutions may offer this loan for a tenure of up to 20 years.
This loan can cater to vast needs such as home renovation, education, or debt consolidation, etc.
Better than other high-interest rate loans, such as credit cards, personal loans, etc.
The loan can be extended at both the fixed and floating rate of interest.
Key difference between a home equity loan and a reverse mortgage
| Key differences | Home equity loan | Reverse mortgage |
|---|---|---|
| Availed for | For varied purposes such as business, home renovation, education etc | To finance retirement needs |
| Repayment | Immediate monthly repayment | Not required/ deferred |
| Eligibility | Income flow evaluation, credit score | Senior citizens and equity is considered |
| Loan balance | Decreases over time | Increases due to the accumulation of fees and other interest |
| Interest rate | Interest rate lower due to regular repayments from the very start | Risky and hence at a higher rate of interest |
| Repayment trigger | Loan becomes due from the very start | Loan becomes due on the death, sale or permanent movement of the borrower. |
Kumar Binit, CEO, Airpay Money said, "A loan against property works for someone who is still earning and can service monthly repayments. A reverse mortgage works the other way: the bank pays the homeowner."
Around 19,500 Indians turn 60 every day, and by 2050, nearly 21% of the population will be above 60, according to a PwC-ASLI report published. For most seniors, the home is the only large asset they hold. A reverse mortgage allows them to draw income from it without selling, moving out, or paying tax on the proceeds under Section 10(43) of the Income Tax Act. Most families discover this benefit too late to use it properly, he added.
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