Home Loans are gaining popularity due to rising property prices and more people aspiring to buy a house. You can take a Home Loan either from banks or non-banking financial institutions. A Home Loan is often given out against the security of the property being bought. What many people do not know is that a property once mortgaged can be mortgaged again.
Here is all you need to know about second mortgage loans and their relevance today.
An Overview Of Second Mortgage
A second mortgage, as the name suggests, implies a loan against a property that has been already once been mortgaged. If you have a Home Loan going, you can seek additional funds by mortgaging your property with the same bank, other banks or NBFCs.
Let’s understand this with an example.
Mr. Kumar takes a Home Loan of Rs. 40 lakhs to purchase a property worth Rs. 50 lakhs. The property will be kept as collateral for the bank till he repays his Home Loan in full. Say, in a few years, Mr. Kumar needs Rs. 10 lakhs to fund his new business. In this case, he can seek a Business Loan against his property. He needn’t offer any additional security.
If the existing lender has kept a big margin between the loan amount and the price of the property, Mr. Kumar can take the second loan from the same lender. He can also reappraise the full loan amount by approaching another bank. In this case, the two banks would need to get into a pari passu agreement by which they would share the rights of lien for that property. In a Pari passu charge, both the lenders share the rights of the property as per the quantum or proportion of the loan amount thus reducing the risk for the second mortgage.
Seeking Second Mortgage Loan
While people usually seek a second mortgage for repair work of the house, they might also go for it for other large expenses. The bank or NBFC reserves the right to allow or decline the second mortgage loan request based on their risk assessment of the borrower. The financial credentials, Credit Score and repayment cycle of the current loan, all play a role in determining the outcome of a second mortgage loan request.
Second Mortgage And Repayments
For a second mortgage loan, a new bank checks your income details and eligibility criteria. The interest rate associated is also higher as a second mortgage loan has a higher risk associated.
A second mortgage loan is to be repaid just like any other loan with pre-determined EMIs as per the interest on the loan. If you have opted for the same lender for both first and second mortgage loans, the bank may open a separate loan account to facilitate repayment of the loans.
Second Mortgage Loan At A Glance
- Second mortgage loans are available with most banks and NBFCs, provided the borrower has a good repayment track record and a healthy Credit Score.
- Banks reserve the right to accept or reject the second mortgage loan request.
- All loan charges are applicable for a second mortgage loan along with pari passu charges if opted.
- Money raised from a second mortgage loan can be used anywhere with no pre-conditions applied.
Before you take up a second mortgage loan, make sure you have a proper repayment plan in place. After all, it would add to your list your liabilities.
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