Homing in on securities: How to borrow safely against your flat
A house is an asset that can open many doors. See what it takes to mortgage your apartment or raise funds for self-redevelopment.Updated: Oct 26, 2019, 20:25 IST
What can your home do for you? Sure it’s a roof over your head. And it’s a place to call your own. But for those who dream bigger, a home is also an asset that can fuel those dreams. Across India, those who own their homes (even those still paying off their loans) are finding that mortgaging their house or apartment, and rallying with neighbours to redevelop their plot, is becoming easier than before. See what it takes to get a loan when you already have a home in hand.
The mortgage guarantee
Americans are familiar with the concept of getting a first (and sometimes even second) mortgage on the homes they own, in order to finance a business. In India, the practice is relatively new.
A mortgage guarantee compensates lending institutions or housing finance companies for losses in case a homeowner defaults on a mortgage loan. The risk of the home loan gets transferred from the bank or housing financer to the mortgage guarantee company and helps lenders broaden the home-loan market.
For home owners, this allows for a higher loan amount. They can also negotiate better commercial terms with the lenders and in many cases, get the loan a formal lending institution was not willing to provide.
Gurgaon based online loan-servicing platform, My Loan Care, serves as a time-saving bridge between banks and borrowers. The platform presents an online comparison of rates, processing fees and other charges. It also offers free loan advisories, coordinates with banks, and allows customers to apply for loans entirely online. Gaurav Gupta, CEO and Founder says the company uses intelligent machine-based algorithms to match a customer’s profile and his requirements to the credit policies of various banks. “We have a tie-up with more than 25 banks,” he says.
The majority of borrowers are in the age group of 35-50 years. Personal loan advisors assist in document collection and coordination to get the loan approved quickly. The service is free – the company is paid by the lenders – and Gupta claims their total monthly disbursements amount to Rs 100 to Rs 120 crore. “Given that we have a low mortgage penetration in the country, coupled with a shortage of quality housing, one can expect a growth of 30-40% in mortgages in the years to come,” he says.
Kumash Desai, a senior marketing professional from FMCG sector, who used the site to apply for a home loan to buy a house in Mumbai, says the process was smoother than having to apply for the loan by himself. “It avoids the hassle of to and fro with the bank. Interest rates are very competitive and duration of return is comfortable too.”
The self-redevelopment loan
Consultancies like Wedevelopment are filling in with their network of investors and financial institutions to allow home owners and building societies to redevelop their plots and apartment complexes. The firm is a nodal agency on the panel of the Mumbai District Central Co-operative Bank and exclusively services societies opting for self-redevelopment.
This means facilitating bank loans and hand-holding the customers from the inception and consents stage to the closure. They’re already working with 20 housing societies in Mumbai, two of which, in Borivli West, are in the reconstruction phase. “We’re also working with self-redevelopment projects in Malad, Ghatkopar and Oshiwara,” says founder Pranay Goyal.
Wedevelopment works on a fee based model. The MDCC Bank loans up to 95% of the money required to re-develop – including funding, shifting and re-shifting old tenants in the interim, their brokerage, rent, construction costs and additional amenities like solar panels. It charges 12.5% annual interest on the amount disbursed, taking the plot and saleable area of the proposed new construction as mortgage (but not the society members’ flats). When the new construction is completed, money from the additional flats sold is used to repay the loan, with the bank charging 1% of the amount as a processing fee.
As with regular redevelopment projects, this too requires consent from society residents and a feasibility report. In addition, the society should be a member of (and have an account in), MDCC Bank, and will need an IOD (Intimation of Disapproval) of at least FSI (Floor Space Index) of 1 to avail the loan.
Even repayment models are accounted for. Projects costing up to 50 crore get a repayment period of 7 years from the first disbursement. For projects costing more than that, it’s 10 years.
Vijay Ladhe, Chairman of Jayakunj Society in Borivali West, approached Wedevelopment to redevelop their plot. They expect the work to be completed by May 2020. “The loan encompasses all the possible costs of the project, even our rents and shifting. The bank also provides a moratorium period, which helps us in managing the cash flow,” he says. “The team was supportive through the entire process and stage-wise loan disbursements are directly made in the society’s account. We would recommend it to other societies.”