Home Loan Interim Security - A Quick Know-How
Are you willing to purchase a home with the help of a housing loan? Then, you must be aware that to get a home loan from a lender, you would need to...
Are you willing to purchase a home with the help of a housing loan? Then, you must be aware that to get a home loan from a lender, you would need to keep collateral or what is known as the interim security.
Yes, for a borrower to avail a Home Loan, he/she needs to provide collateral or interim security. Interim security is kept with the lender or a bank for the time a bank or a lender offers a borrower some money for purchasing a home. Interim money is nothing but a surety or security that's offered to financial lenders in lieu of the housing loan.
A home loan runs for many years and has huge loan amount in disbursal which prompts a lender to ask for collateral. In other words, a home loan is also a secured loan, and as the nature of the loan suggests, security needs to be offered to a lender.
If a borrower fails to repay the home loan within the scheduled tenor, a lender gets the right to use the collateral or interim security to recover the lost loan money.
Interim security could be in the form of shares or other key investments, insurance policy whose value should be equivalent to or more than the loan amount.
When is interim security required?
Property Under Construction:
Let's provide an example to help you know more!
Suppose Mr. X is seeking a housing loan to fund a property, whose construction is in full swing. But, the property's value is lower than mentioned in the agreement that he has mortgaged to the lender.
As a result, his lender asks him to provide interim security till the house's construction gets completed. The bank or the lender also instruct that offered security by the borrower should not have been pledged against other security or debt.
Also, a lender may not ask you for interim security in following cases:
- When your property's value is rising and if your builder has a good track record of delivering the home on time and when your lender is convinced.
Loan Balance Transfer
After Reserve Bank of India's waived off prepayment charges, many home loan borrowers are zeroing on a Home Loan balance transfer. Banks may demand interim security when a borrower transfers his/her loan from one lender to another.
Non-banking finance companies (NBFCs) also offers a Home Loan Balance Transfer facility these days, and you may get a better deal when interim security is concerned. Thus, compared to banks, giving leading online NBFCs a chance should not be a bad move. Ask a new NBFC about more details whom you wish to switch home loan!
Banks may also ask for interim security when a borrower is purchasing a property. It is needed for the duration of loan disbursements when the lender gets the registered sale deed against borrower's name.
The process of registration, documents collection from registrar office and the submission to the bank may take 3-4 weeks. The loan remains unsecured during the mentioned period. For the interim period, a borrower needs to provide some loan security to the bank.
The Bottom Line
As a borrower, you should be mentally prepared that your lender may ask for interim security if you are seeking a home loan. It is important to understand as a majority of lenders may not inform you when you go to apply for a housing loan.
Now that you are well-informed of the home loan security insights, you are in a better position to deal with it!