A home equity loan, also known as a home loan, offers several benefits to those looking to buy a home. Additionally, there are specific documents that you must submit during the application process. Benefits and documents required for a mortgage loan.
A mortgage loan is a secured loan where you use your property (residential or commercial) as collateral to obtain a loan from a bank or financial institution.
Here are the highlights:
Secured Loan: A loan against property (LAP), is secured because you offer your property as collateral. If you fail to repay the loan, the lender can take your property.
Loan amount: The loan amount depends on the value of the property, usually 40% to 70% of the market value.
Loan interest: LAP usually has a lower interest rate compared to unsecured loans because your property backs it. A fixed or variable rate is possible.
Loan tenure: Depending on the lender’s policy, you can repay the loan over a longer period of time, usually 5 to 20 years.
Use of loan: You can use the loan for various purposes such as business expansion, education, medical expenses, or debt consolidation.
Eligibility criteria: Lenders consider factors such as your property value, income, age, creditworthiness, and other criteria to determine your eligibility.
Approval Time: LAP may have a longer approval process due to property values and legal reviews.
Advantages of mortgage loans:
Home Ownership: The main benefit of a mortgage loan is that it allows you to own a home without paying the full purchase price. You can pay off the loan gradually over time.
Leverage: You can leverage your financial resources by making a down payment and borrowing the rest. This allows you to invest in real estate with less cash flow.
Tax Benefit: In India, you can avail of tax benefits on the amount of principal and interest paid on your home loan under Section 24(b) and 80C of the Income Tax Act.
Fixed EMI: With a fixed-rate mortgage, your monthly repayments (EMI) remain constant throughout the loan term, making it easier to budget.
Asset Appreciation: Over time, your property can appreciate in value, leading to capital gains when you decide to sell.
Building Equity: When you repay your mortgage, you build equity in your home, which can be a valuable asset in the future.
Documents required for a mortgage loan in India:
The documents you need may differ slightly from one lender to another and depend on the type of business (salaried or self-employed). The general list of documents required for a mortgage loan:
1. For salary earners:
Aadhar, PAN, passport, voter ID, or driver’s license are acceptable forms of identification.
Proof of address: Social Security Card, passport, voter’s ID card, or driver’s license.
Proof of income: Salary, Form 16, and bank statements for 3-6 months.
Employment Certificate: A letter from your employer showing your place of employment, salary, and years of employment.
Bank Statement: Within the last 6-12 months.
Real Estate Documents: Copy of sale agreement, title deed, property tax, and NOC from builder or society.
Proof of payment below: A bank statement showing the source of funds for your payment.
Photo: Passport size photo.
2. For self-employed:
Aadhar, PAN, passport, voter ID, or driver’s license are acceptable forms of identification.
Proof of address: Social Security Card, passport, voter’s ID card, or driver’s license.
Income Proof: Last 2-3 years’ Income Tax Returns (ITR), Profit and Loss Statement, Balance Sheet, and Business Registration Documents.
Bank Statement: Within the last 12-24 months.
Real Estate Documents: Copy of sale agreement, title deed, property tax, and NOC from builder or society.
Proof of payment below: A bank statement showing the source of funds for your payment.
Photo: Passport size photo.
Home loan calculator
Of course! To calculate your home loan EMI (Equal Monthly Installment) and estimate your monthly repayments, you can use the basic formula:
EMI = P[r(1+r)^n]/[(1+r)^n-1]
where:
EMI = Equated Monthly Installment (your monthly payment)
P = Principal Loan Amount (the amount you borrowed)
r = Monthly interest rate (annual interest rate divided by 12, then divided by 100 to convert to decimal)
n = Term of loan in months (number of years multiplied by 12)
Here’s how to use this formula:
Convert your annual interest rate to a monthly rate by dividing by 12. For example, if your annual interest rate is 7.5%, the monthly rate will be 7.5% / 12/100 = 0.00625.
Set the loan term in a few months. If you have a 20-year loan, n will be 20 years * 12 months/year = 240 months.
Formulate these values with the principal loan amount and calculate the monthly EMI.
However, you can use an online home loan EMI calculator provided by banks and financial websites. This calculator simplifies the process and provides quick results. Enter your loan amount, interest rate, and tenor and the calculator will give you the EMI amount.
Here is a simple example to calculate Home Loan EMI manually:
Suppose you take a loan of 30,00,000 (30 million) for 20 years (240 months) with an interest of 7.5% per annum.
Monthly interest rate (r) = 7.5% / 12/100 = 0.00625
Loan term (n) = 20 years * 12 months/year = 240 months
Now use the formula:
EMI = ₹30,00,000 * [0.00625 (1 + 0.00625)^240] / [(1 + 0.00625)^240 – 1]
Calculating this equation will give you the estimated EMI for your home loan.