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04 May 2011

Refinancing and Second Home Loans

This option allows the borrower to increase the loan amount after repaying for certain tenure. What does refinancing mean and how does this relate to home loans?
The term refinancing means that some property or asset which has been used as a security by the borrower can again be mortgaged to collect another loan. As property prices are on a rise the value of your home also increases than the amount you had paid for to purchase it.  One can increase their loan amount after some years when the total value of the property increases. As suggested in my earlier posts the bank or financial loan lending institution offer loan against any ownership flat or property according to its market value. The borrower can avail a loan of maximum 60% of the total value for residential property and 50% loan on commercial property. Since loans against property are taken for expanding business or other property purchases the borrower can after some years apply for the refinancing option and get another loan on the same property. This proves to be a boon for many as they can benefit from the same asset twice.
When taking home loans the borrower who has taken a mortgage loan or loan against property and is repaying the same needs some more financial assistance he can go in for this option. By refinancing he can get some more amounts depending upon the increase in value of the mortgaged property or house. This means that the borrower can use the same asset twice to avail an increase in the borrowed loan amount.  Since property rates are increasing refinancing has also become easy and lenders are open to this type of loan options.
Even when you are paying off a home loan you can purchase another second home by mortgaging the same property to avail loan. If the total market value of your property is higher than the estimated cost of the two houses any loan lending company will be happy to offer you loan. Since they have very little risk involved by offering a new loan on the same property. Your previous track record and payments schedule along with the monthly EMIs the new lender will allow a fresh loan keeping in consideration the total value of your property. In case of default by the borrower they can always sell this property to recover the dues.
Hence it is the right time to invest in second homes as houses are becoming precious and dear in terms of cost and space. And that too by refinancing option of getting loan on the same property and availing a new loan for another home.

My Home Loan Application was Rejected.

We hear sometimes that your home loan application was rejected and you wonder that the person is financially well balanced and working then why did the lending institution not accept their loan application?
Firstly the individual concerned may be of higher age group and the lender will assess their retirement age and working years left and accept applications according tot heir repayment capacity in this productive period only. If the borrower is of more age then they must have assets to cover the loan amount then the chances of approval are more but if the person concerned has not much savings or property then the lender is not willing to risk such a high amount as they fear of default in repayment. When the applier of loan is very young then also the same questions erupt in the mind of the lender. They will see your qualifications and if you are highly qualified and have a high paying job then your chances of loan approval are much more than your counter part, who may be averagely qualified and has a clerical job. Also the amount you have applied for must be such that you can easily repay through your monthly incoming income and salary. If you have more dependents and your salary is going more in regular expenses then how will you save and the lender is very critical about your repayment capacity. They will go through your credit card report and your bank statements and if there are any dues or delayed payments then this again creates a negative point for your chances of loan approval. It is advisable to first decide the budget for your new home and apply for that amount other wise if you apply for a very large loan than your repayment capacity then your application will definitely be rejected.
Now another important point which we forget is if you have many ongoing loans. Even if you are from a high income group the lender will enquire about your ongoing loans if you have maybe a car loan, insurance policies, and other investments that require regular payments every month then how will you collect the money for EMI?  Here if you have assets worth more than the lending institution may consider but if not then they will not take the risk because houses also cost in lakhs and crores and the home loan is not a small amount.
Whatever the reason for your loan rejection, plan accordingly for approval. It would be advisable to create a new credit account and improve your credit ratings if this was the reason for rejection. Try to start saving as much as possible and this require patience and effort for some years before applying again. Also accumulate assets and club investments so as to minimise regular monthly outgoings. Try to clear off as many loans as possible before applying for a new home loan. All the Best!