Mortgage Loan on Joint Property

The property with the joint ownership of all the family members means we can say it’s a HUF (Hindu undivided family). One person of the family is appointed as a “Karta” and there is no limit to the membership of family members once the family members get married but he should be the son only. If the daughter gets married than she will not be considered as the member of HUF further. Generally HUF gets some income tax benefits on their yearly income and HUF gets special benefits from government and for getting the special benefits, in the same year two ITR(Income tax returns) needs to be filled by family. One is for individual name and another Income tax return with the name of HUF, so this is the clear picture of joint family low of Hindu religion.


Now we see the overall banks stands on the joint ownership property anywhere in India from HUF ownership. HUF is created due to some large undivided family structure and in this structure some minor family members can also be there and as per the Indian company law “No contact can be done with the minor members of the family in any manners”. If this happens, then it would be invalid and the transaction of property shall be cancelled. This is the only reason why banks and other financial institutes are not providing the mortgage loan, loan against property or any kinds of secured property loans against existing property which includes the ownership of HUF with presence of minor members of the family.

Sometimes, we see some kind of self employed customers who belongs from HUF and the owner of the firm is the “Karta” of the HUF in this situation. In such cases, if business stability is not a concern area which means company has enough experience approximating more than five years and have sufficient amount of ITR and supportive ABB is last one year bank statement with good vintage of existing loans in current balance sheets and P&L(Profit and Loss Statement) account of the company from last three years, some other parameters like the nature of business of the company also matters for availing unsecured loan from any of banks and financial company like NBFC and the loan amount can be availed up to 30 to 40 lacs as per the calculation from last three years ITRs.

HUF Karta can avail home loan also but the only points to be followed is, the family must not have currently any of minor members out of the HUF family, and some other point where member is director in any of Pvt Ltd entity, he is eligible to become the co-applicant, if the company is coming as applicant for any secure or unsecure loan processing. Loan against Property or any of Mortgage Loan on joint property is very difficult product due to some legal aspects which can come to HUF law, so the borrower have only few choices for getting loans. One is unsecure Personal Loan and other is Business Loan but he can avail the secured mortgage only if than he does not have any minor person in his family and it should be on board.


Personal Loan Vs Loan against Property

What is a Personal Loan?

A personal loan is a loan often extended by a bank or a financial institution to meet the financial needs such as medical expenses, wedding or vacation funding, house repairs or renovations, debt consolidation etc. The end usage of the money extended as personal loan is not monitored by the lending bank or financial institution. A personal loan is usually extended on the basis of a person’s credit history and the borrower is expected to repay the loan from personal income. Such a loan is often extended without any of the borrower’s asset being pledged as collateral.

What is Loan against Property?

As the name suggests, a loan against property (LAP) is a loan raised by mortgaging the property to a bank or a financial institution. Historically, in India loan against property signifies loan against the borrower’s real estate asset. In more recent times, however, gold (bonds and jewellery), government securities and bonds, and even equities are considered viable assets against which loans are extended. In case of LAP, the lending institution (bank) holds the asset as collateral and extends some 40 to 70 percent of its market value as loan. If the loan is made for the purchase of property, the property acquired by it is mortgaged till the loan is repaid.

Loan against Propertys

Personal Loan Vs Loan Against Property

In many cases, the decision to opt for a personal loan or a loan against a property is often a personal one or may depend on factors such as availability and ease of obtaining credit etc. There are a number of similarities and important differences between the two that you must be aware of before opting for either.

In general, banks and lending institutions do not specify the end utility of the money borrowed by way of personal loans and loans against property. Only in rare cases do lending financial institutions specify the usage of a LAP. This means that in most cases, the borrower may approach a bank or lender for either LAP or personal loan with a loan requirement without the need for stipulating how the loan amount will be spent.

Apart from this, the two loans differ in many ways.

  • A personal loan is a loan that the bank or financial institution extends on the personal recognizance of the borrower after studying his/her salary or income, credit worthiness, and previous loan track record (if any). There is no need for a guarantor or a security to be able to raise the personal loan. In case of the LAP, however, your asset (usually real estate property) will be mortgaged and the loan extended against it. This means that your property could be forfeited if you fail to repay the loan.
  • A personal loan is a non-secure loan for a bank, this means that in case of a failure to repay, the bank has no collateral or guarantor who can assure repayment. This makes the process of taking out a personal loan subject to much scrutiny. Taking out an LAP, on the other hand is much easier, since the loan amount is secure. It is a mere fraction of the value of the asset mortgaged.
  • Personal loans are usually taken out on smaller amounts of loans (averaging INR 3-5 lakhs). These are loans to meet at the borrower’s emergency needs such as medical expenses or to meet needs when other loans are not available eg. wedding expenses, children’s education etc. Loan against property is usually a much larger amount in comparison to a personal loan. Most institutions lend about 40 percent to 70 percent of the value of the mortgaged property.
  • Due to the increased risks to the bank or the lending institution, interest rates on personal loans are often higher than loans against mortgage of property. LAP interest rates range from 12 percent to about 16 percent. Personal loan interest rates range from 16 percent to 21 percent.
  • The Equated Monthly Installments (EMI) on LAP is also much lower in comparison to personal loans.
  • Personal loans have a maximum repayment term of 5 years or 60 months. LAP repayment terms may extend up to 15 years.

What documents will I need for a LAP?

Most lending institutions will require the following documents before extending a LAP:

  • Application form with photograph
  • Proof of Identity
  • Proof of Residence
  • Salary slips/Proof of Business Existence
  • 6 months bank statements
  • IT returns for 3 years (individual and business if self-employed)
  • Processing fee (payable by cheque)

In most cases, the choice of taking out a personal loan or a loan against property will depend on the borrower’s need, availability of property for mortgage, lending institution’s regulations, end purpose of the loan, and urgency. In both cases, it is best if the borrower approaches a nationalized bank or a bank of repute rather than depending on personal lenders of shady repute.


The 4 Most Important Mortgage Documents

Regulatory changes to the mortgage process have made it so many new buyers are now working off new and unfamiliar documents. Here is a guide to the most important documents you will encounter and sign on the way to closing on your new home.

The Loan Estimate. A new form that was put into place by the Truth In Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), this document is issued within three days of applying with a lender, and it replaces the Good Faith Estimate and Truth In Lending disclosures. It will show loan terms, your projected payments over the span of a mortgage, and line item closing costs. It is designed to make it simpler to compare different loan programs and lenders so you can be sure you are getting the best deal.

Mortgage Loan online
Mortgage application form with a calculator and house.

The Closing Disclosure. Virtually identical to the Loan Estimate, though this form is issued at least three business days before closing on your mortgage Loan and includes a breakdown of costs paid by buyer versus seller versus third parties. This way, the buyer can see if the initial quote and final terms have changed and easily compare the two documents.

The Promissory Note. Also known as “the note,” this document is the loan contract, containing the terms of your loan (specifying if it is a fixed rate loan or adjustable rate loan), the interest rate, payment intervals and payment changes or penalties. It also specifies that your home is security for the loan in case of default.

The Security Instrument. Also known as “the deed of trust,” this form functions as another form of documentation pledging your home as security. It also specifies if your home is going to be owner-occupied, a second home or non-owner-occupied.

There are, of course, many documents and moving parts that go into obtaining a loan or refinancing, but knowledge of the most important parts, along with a knowledgeable loan officer, can make the process far less stressful than many believe.


The problem with Property Loan

The latest in Reserve Bank of India’s measures to protect customers with home loans is a proposal to change the way banks determine their `base rate’ – the benchmark for all floating rate loans. The need for a re-look arose because customers have been complaining of a raw deal in pricing.

In recent years RBI has taken a number of measures to provide a better deal for home loan borrowers. The introduction of base rate ensured that banks do not reduce rates only for new customers by playing with the interest spread. In the past banks could play with the spread as they would lend below the prime lending rate (their earlier benchmark) for new customers while old customers continued to pay over the PLR.  This was not possible with the `base rate’ which was also the floor rate for pricing. In June 2012 RBI forbade banks from imposing a penalty on pre-payment of home loans irrespective of whether the loans were being refinanced or repaid. This made it possible for disgruntled borrowers to move away to rivals if their loans were not re-priced when interest rates were falling.

Property Loans

But there are a number of areas RBI could look into as part of its consumer protection initiative. Here are a few.

Compulsory insurance: Banks have an interest in the property mortgaged with them and they need to ensure that it is protected against any eventuality. At the same time banks also gain by selling insurance policies.  But what needs to be insured is the cost of construction and not the cost of land. A 1000 square foot house may cost Rs 2 crore in Mumbai but the cost of construction would be around Rs 20 lakh. So there is no need of buying property insurance for the whole loan amount. Yet many banks insist that the buyer pay 15-year insurance premium upfront based on the market value of the property rather than the construction cost. Also in cities like Mumbai, the property is owned by the cooperative society which is required to insure the property. It is therefore not clear whether the bank’s insurance policy will pay a claim when the housing society is also making a claim for the property damage.

Non-intimation of interest rate changes:  Most Property Loan borrowers focus on the interest rate at the time of availing home loans. But floating rates are dynamic and vary from time to time. The borrower is not aware of this because while rates vary, the equated monthly installment or EMI does not. Banks merely change the tenure of the loan. So in a rising interest rate regime it is not unusual for borrowers to find that their principal loan amount is unchanged even after years of repayment.  Very rarely does a bank communicate to the borrower changes in interest rates.

Notice of intimation of mortgage: In Maharashtra the government has made it compulsory for all mortgage interests to be registered. This is aimed at preventing fraudulent sale of the property even as a loan is outstanding.  While the objective is laudable, the trouble is with the process. Although the law actually protects the bank’s interest lenders have shifted the onus on the borrower.  Rather than use their institutional clout to facilitate smooth registration, borrowers are forced to approach agents and spend a few thousands to complete this process.

No refinancing of existing loans:  Lenders often poach from home loan borrowers of other institutions. But when it comes to their existing customer they do not offer them the benefit of new rates.  If there is a special scheme running in the bank, existing borrowers are not informed of it. Also banks charge customers a processing fee even when their loan is refinanced within by their own bank but under a different scheme.

Complex pricing: Some banks have resorted to complicating the pricing of home loans introducing interest free years in middle of the tenure of the loan. Innovation in financial products are good only as long as they do not obscure pricing. Borrowers need to have the opportunity to compare the cost of one home loan against another.  One way to make the pricing transparent is to disclose the cost in the form of annualised yield to the lender based on prevailing rates.


How To Get A Mortgage Loan In India

A mortgage loan referred to as mortgage is a type of loan which Is used by property owners against their property for variety of purposes like buying a new property or to raise funds for any other purpose. In simple terms it means that the bank takes the ownership or possession of your property and gives you money in return for that property.

Mortgage Loan In India

The value of that property is calculated on the banking standards or according to the current market price of the property which ever deemed fit. One important feature of mortgage loan is that the size of loan, maturity of the loan, interest rate on the loan, method of paying off the loan and many other circumstances can vary from country to country and from time to time.

Mortgage Loan

How to Get Mortgage Loan in India

Mortgage loans are basically of three types. First one is Fixed Rate Mortgage in which the rate of interest for paying the loan remains same throughout the entire period of payment of loan and the loan is divided into equal monthly installments. Second one is Adjustable Rate Mortgage in which the interest rate of the loan changes during the payment of the loan.

Third one is Interest Only Loans in which you keep paying up the interest for the first few years and then after the set time period you have to pay both the principal amount as well as the interest. This type of loans are for people who do not have regular incomes or in other words whose incomes are irregular. Getting a mortgage loan in India is very easy and hassle free in India despite of all the paperwork involved. We are discussing the steps following which you can get a mortgage loan in India.

First of all you have to open a bank account in the bank from which you are going to take the mortgage loan as this is the first and foremost requirement. For mortgage loans you need to go through sweat breaking paperwork so for you to get hassle free loan we have compiled the documents you will need and explained briefly what is all about.

Documents that will be needed for the application include

  • Proof of identity which may include your Passport, Driving License, Adhaar Card, Pan Card or any other document that backs up the claim of your identity.
  • Proof of address which may include Utility Bills, Electricity Bills, Water Bills, Rental Agreement or any other utility bill that verifies your claim of your address.
  • Proof of Your Regular Income like Bank Statement, Payment Receipts, Balance Sheet or almost anything that verifies your claim of getting a regular income.

Proof of Good Credit

Documents about the property like deed of sale, allotments letter or any other document that verifies your claim that you are the authentic owner of the property.

Some photographs of the property are also demanded by some banks.

In addition to all the above documents some banks in India have special requirements like that any of your close relative might be living in the country to be as guarantor. As mortgage loans are different from the personal or any other type of loans so they have these special requirements to verify each and everything so that there is no discrepancy whatsoever.

Mortgage loans are offered against residential and commercial property as well as any other property that you own in the country. The repayment policies of different banks are different and so are the interest rates charged by them on these loans.


Loan against property: Guaranteed Way of Arranging Funds

Person can get a loan against property only if a person provides collateral to the bank in the form of commercial property, house or flat. Person can use this amount for any personal purpose such as going for a vacation, for paying bills, house extension, initiating new business, education, house improvement, business expansion, marriage expenses, and purchase of goods, debt consolidation and many more. A loan against property means a loan given or disbursed against the credit of the property. Person can avail loan against property as a certain percentage of the property market value which is around 40% to 60%.

Loans against Property

The various features of loan against property are:


  • A person can use this loan for any purpose or need whether it is professional or personal.
  • The Person can get a loan against property on fully constructed property.
  • Person can get a loan at the cheapest interest rates. Banks provide two types of interest rates such as fixed rates and floating interest rates.
  • Person can get an amount of loan up to 60 to 65% of the market value. It depends upon the person property or flat.
  • The client can pay off the loan amount through EMI or monthly installments.
  • Person has to pay off the amount of loan range from 10 to 15 years.
  • Loan against property is a secured loan.
  • The process of Loan against Property is easy, convenient and hassle free.
  • The banks charge 13-18% of the rate of interest on the loan against property amount, which totally depends on the amount of loan and person’s profile.
  • Person has to get minimum of Rs.10 Lakhs for getting loan against property.
  • A person can get a loan up to Rs.10cr.

The tenure provided by the bank is 10 years. The loan amount needs to be repaying in the form of EMIs. In any case, person want to avail loan more than 25 lakh, person need to mention the reason for getting a loan. The loan amount person can get against property can range from 10 Lakhs to 3 crore. This amount is depending upon the property person pledge. The amount of the loan also varies from bank to bank. The age limit of person lies between 21 to 60 years.