Home Equity Loan

A home equity loan enables you to access funds from banks and NBFCs by putting the equity of your house as collateral. It is a second mortgage where you can pledge your home as security even when you have already availed of a loan against it. 

In simple words, the amount of a home equity instalment loan is the difference between the market value of the said property and its mortgaged value. Read on to find out more about this type of loan and what current home equity loan rates most banks charge. 

There are two home equity loan types for which you can apply from some of the major banks and NBFCs. These include:

• Fixed-rate Loans

This loan provides you with a lump sum payment that you can repay at a predetermined interest rate over the loan tenure. 

Its key is that its interest rate does not change according to market conditions. To put it simply, throughout the loan tenure, you will pay the same interest rate.

• Home Equity Line of Credit (HELOC)

The interest rate on a HELOC can fluctuate as per the market conditions. The mechanism of this loan is similar to a credit card. You can borrow a portion of the pre-approved loan from the lending institution. 

The full loan amount has to be repaid on the completion of the loan tenure. Typically, lending institutions offer HELOC as part of the credit card offers. Like credit cards, you can borrow again, as per your credit limit, after settling your dues. 

• Cash-out Refinance Loan

A cash-out refinance is a type of home equity loan where you replace your existing mortgage with a new, larger one. The difference between the old loan balance and the new loan amount is given to you in cash. 

Homeowners often use this money for home improvements, debt repayment, or other major expenses, while continuing to pay one monthly mortgage payment. 

In many aspects, the working mechanism of a home equity loan is just like a house loan. For instance, your house is the equity or collateral for both loan types. A home loan allows you only to borrow a maximum of up to 90% of the market value of your house. 

On the other hand, the home equity loan can be availed for the total market value of your property. In other words, you receive funds or cash according to the market value of your property. The amount, along with interest, has to be repaid at a fixed interest rate over the loan tenure.

• Convenient and Easy

You can qualify for this loan easily as this is a secured loan. As you pledge your house as collateral for this loan, financial institutions can provide it even if you don’t have a good credit score. 

• Property to Cash Conversion

With a home equity loan, you can easily receive a loan amount corresponding to your house’s market value.

• Afford Big-ticket Expenses

The home equity loan can help you receive a lump sum amount. You can then use it for meeting the cost of any big-ticket expense.

• Fixed Rates of Interest

The key advantage of a home equity loan is that the interest rate is not affected by market fluctuations and remains fixed throughout the loan tenure.

• Potential Tax Benefits 

Interest paid on home equity loans may be tax deductible, depending on local tax laws and how the borrowed funds are used.

• Easy Debt Consolidation 

Home equity loans allow borrowers to combine multiple high interest debts into one loan, simplifying payments and often reducing overall monthly repayment costs.

• Fixed Repayment Term 

These loans have a fixed repayment period with predictable monthly payments, helping borrowers plan budgets clearly and maintain long term financial stability.

• Large Borrowing Potential 

Because borrowing is based on available home equity, homeowners can access larger loan amounts than many other consumer lending options. 

Eligibility norms for a home equity loan vary across lenders, but most follow similar requirements. Here are some common conditions you may need to meet: 

• You should be between 21 and 70 years old at the time of application

• Your minimum monthly income is generally expected to be at least ₹30,000

• Salaried applicants must have a stable job history with at least one year of work experience

• Self-employed individuals should demonstrate a minimum business track record of two years

• A CIBIL score of 700 or higher is usually preferred for smoother approval

The documents you need may differ by lender, but most follow similar requirements. Below are the commonly requested documents: 

For Salaried Individuals

• Provide a valid ID such as PAN, Aadhaar, passport, or voter ID

• Submit address proof like Aadhaar, passport, or a recent utility bill

• Share your last three months’ salary slips, Form 16, and your latest ITR

• Include property papers such as the sale deed or registration documents
   

For Self-employed Individuals

• Submit a valid ID such as Aadhaar, passport, or voter ID

• Provide address proof like Aadhaar, passport, or a recent utility bill

• Share six months’ bank statements, business ITR, and audited financial statements

• Include property documents that clearly show ownership or title

To get a home equity loan, you have to assess your and your property’s eligibility, prepare the required documentation and research online. Here are is how the process generally goes: 

1. Assess your Financial Standing

• Calculate your Equity: Determine your home's current market value minus the outstanding mortgage balance to understand how much equity you have.

• Check your Credit Score: Get your credit report and a copy to review it for errors. A good credit score is crucial for getting approved and securing a better interest rate.

• Check Eligibility Requirements: Most lenders require a minimum of 20% equity in your home, a verifiable income history, and a credit score of 600 or higher.
   

2. Research and Apply Online

• Compare Lenders: Research and compare interest rates, terms, and fees from different banks, credit unions, and online lenders.

• Gather Documents: Collect necessary paperwork, such as payslips, bank statements, tax returns, and your current mortgage statement.

• Submit your Application: Fill out the application form and submit it with all your required documents.
   

3. Loan Processing and Closing

• Wait for Approval: The lender will review your application, conduct a credit check, and may order an appraisal of your home.

• Review the Offer: If approved, carefully review the loan offer, including the interest rate, fees, and repayment schedule.

• Finalise and Receive Funds: If you accept, you'll sign the final loan documents and the funds will be disbursed to you, usually as a lump sum. 

Applying for a home equity loan or a loan against property online allows you quick access to funds. On Bajaj Markets, you can apply for a Loan Against Property via the followign steps: 

• Step 1: Click on the ‘Check Offer’ button on this page. 

• Step 2: Enter your basic personal details and employment or business information. 

• Step 3: Select the loan amount you need and your preferred repayment tenure. 

• Step 4: Submit the online application form for verification. 
   

Post successful verification, a representative will reach out you for the remaining formalities. 

A HELOC, or Home Equity Line of Credit, is a revolving credit line secured by the equity in your home. It allows you to borrow funds as needed up to a set limit, similar to a credit card, and you only pay interest on the amount you withdraw. This type of loan is secured by your property, so it typically has lower interest rates than other types of unsecured loans. 

After approval, you can draw from your HELOC up to a maximum amount during a ‘draw period’. You can take money out in one lump sum or in smaller increments, paying interest only on the funds you use. Interest rates on HELOCs are often variable, though some lenders may offer fixed-rate options. Once the draw period ends, you typically enter a repayment period to pay back the principal and interest. 

• Borrow as Per Requirement

With a HELOC, you have the option to borrow a portion of your available credit limit. 

• Borrow Again after Repayment

Once you settle your dues, you have the option to borrow the loan amount again. 

• Pay Lesser Interest

With a HELOC, you are charged interest only on the borrowed amount. 

• Flexibility in Withdrawals

A HELOC allows you to borrow portions of your total credit limit continuously. So, you can use it to meet mid to short-term financial goals, requiring regular payments. 

While home loan equity requirements vary depending on the lender, the following are certain requirements that all lenders need you to fulfil: 

• The value of equity of your house must be at least 20% of its market value 

• Regular source of income to be attested by two years of ITR filings or bank receipts 

• A credit score of more than 600 

To calculate the equity or value of your house, lending institutions usually use this formula: 

Value or Equity = Market Value of the House – Outstanding Loan Amount

This can be explained with the help of an example. Suppose the market value of your house is ₹60 Lakhs, and you have an outstanding home loan of ₹40 Lakhs. So, the equation will now read: 

Value / Equity = ₹60,00,000 - ₹40,00,00

In other words, the home equity loan value will be ₹20 Lakhs. But if you don’t have any outstanding home loans, the home loan equity amount will be the same as the market value of your property. 

Pros of Home Equity Loan

• Lower Interest Rates: Home equity loans usually offer lower rates than unsecured credit, helping borrowers save more over the full loan term. 

• Large Loan Amounts: Borrowers can access higher funds, useful for home upgrades, education costs, medical needs, or consolidating high-interest debt. 

• Tax Benefits: Interest payments may qualify for tax deductions, though eligibility depends on current tax rules and individual borrower conditions. 

• Higher Property Value: Using the loan for home improvements can increase the property’s market value and boost overall home equity. 

• Quicker Approval: Since the loan is backed by property, lenders may process and approve applications faster than other loan types. 

• Fixed Monthly Payments: Predictable EMIs make budgeting easier and help borrowers plan long-term expenses with confidence. 

• No Prepayment Charges: Many home equity loans let borrowers close the loan early without penalties, reducing interest costs. 
   

Cons of Home Equity Loan

• Risk of Foreclosure: Missing EMI payments can put your home at risk, as the property serves as collateral for the loan.

• Limited Usage: These loans are generally meant for specific needs like renovations or repairs, making them less flexible for other financial requirements.

• Fees and Charges: Home equity loans often include costs such as application fees, appraisal fees, and processing charges, which can increase overall expenses.

• Locked-in Equity: A portion of your home’s equity gets tied up, reducing your ability to use it later for refinancing or property sale decisions.

• Credit Score Impact: Taking this loan adds to your total debt, which can raise your debt-to-income ratio and negatively affect your credit score.