You might have come across the term mortgage many times in your business. It is one of the most common forms of borrowing for a business. It is important to know what it means and how it works. Mortgage is basically a security. When you apply for a mortgage loan, you provide a security in the form of an asset. The risk of the lender will reduce because of the mortgage and you will be able to enjoy funds against the same. Here are a few things you need to know about the loan.
Understanding mortgage
When you apply for a loan that is backed by a security in the form of property or an investment, it is known as a mortgage loan. There are different properties you can use for the loan. You can use a commercial property or a residential property for the same. The property can be in use, rented or even leased out.
Using the loan amount you borrowed
There is no restriction on the ways in which you can use the loan amount that is given to you against the property. You can utilize the funds for any purpose, whether it is for an emergency or for expansion of your business.
Eligibility for the loan
Self employed individuals, professionals, business owners, partnerships, corporation are eligible to apply for the loan. It is important to provide property documents when applying for the loan. You will also have to provide an identity proof, income proof, and documents related to the business. The lender will estimate your ability to make the repayment based on the business documents and stability of the income.
Loan amount
The loan amount is proportionate to the value of the asset you mortgage. When you apply for the loan, the lender will hire a market valuer to estimate the value of the property. Based on the value, the loan amount will be decided. No lender offers 100% of the value of the property as a loan, they generally offer 60% to 70% of the value of the property. Hence, it is advisable to be aware of the market value of your property before you apply for a mortgage loan.
Repayment of the loan
While there is an advantage of low interest rate and a high loan amount, it is important to remember that the loan should be repaid on time. You can repay the loan in the form of EMIs over the tenure. You need to remember that if you default in the repayment, the property will be taken over by the lender to recover the funds. Hence, ensure that you make the EMI payments on time without any default.
Mortgage loan can help you with your business and will be an ideal way to expand the business. If you have an idle property, you can use it for the loan. A lot of large businesses prefer to use their property for a loan because of the high loan amount and low interest rate.
