The increasing need for finance in the present world due to increasing business opportunities as well as high competition often puts huge pressure on business owners. In such circumstances, raising equity might not be possible while raising a personal loan is often quite expensive as compared to a secured loan. A start-up might not be able to avail of a secured loan due to their low revenue and in such circumstances; a mortgage loan can come to their rescue. Mortgage lending includes receiving a loan against the property of the borrower which provides security to the financial institution and the required money to the borrower. Before you apply for a mortgage loan, you must consider the following factors:
Check their LTV:
Loans in mortgage lending are generally given as a % of the value of the property. This is known as the loan to value. The borrower must be aware of the LTV policy of the lender as it will allow them to understand the amount of loan that can be obtained from such a lender. A higher LTV will allow the borrower to acquire a higher value of the loan.
Understand the prepayment process:
Loans and mortgages are often obtained to fulfil a short term gap, especially for startups or businesses. If the requirement of a loan is for such a purpose, one should verify the prepayment process as well as charges associated with the same. Certain institutions allow for early prepayment without any cost whereas certain institutions charge a considerable amount. Such charges can make a huge difference in your selection of a mortgage lender.
Acquire details about charges associated with the loan:
All loans or mortgages are accompanied by a plethora of charges with them. In the case of mortgage lending, the institution might be required to get insurance for the property. Apart from insurance, charges such as processing charges, one-time fees, etc. must be seen and understood to calculate the true cost.
Property Valuation:
Since LTV will determine the amount of loan granted, the value of the property will play a huge factor. Each institution will probably have its own value metrics and it is prudent to choose an institution which values your property at a value which is similar to your own.
Interest Rates:
One of the most vital parts of obtaining a loan or mortgage is the rate of interest. The mortgage loan interest rate must be thoroughly understood before signing on the dotted line. There are a plethora of modes as to how financial institutions calculate interest including fixed interest, flexible interest rate as well as rates linked to the central bank’s rate. The borrower should carefully study the rates of interest offered before taking any final decision between different lenders.
A mortgage loan can be a great pit-stop in your journey to develop a special and efficient business. While there are several such offers, the above-mentioned points will help you filter between the good and the best lenders. A good loan rate and flexible payment schedule can be a difference between bankruptcy and survival for many startups and these points can help you make the correct decision.
