What is home equity loan in India? Is it different from a reverse mortgage?

A home equity loan in India, as the name implies, is the money you borrow on the accumulated or built-up home equity or market value of the home. Also called the ‘second mortgage’, the lending product allows you to secure funds against the value of the property minus any outstanding home loan balance. Typically, in India, this loan product is popular as a loan against property.

Say, now if you have a property worth ₹2 crore and the outstanding home loan value is ₹50 lakh, then your current home equity stands at ₹1.5 lakh. Now, lenders considering this value and your eligibility may sanction and disburse some loan proportionately.

Home equity loans are essentially of two types:

Fixed-rate home equity loan: It is a home loan secured by keeping the property as collateral, and here you need to service the loan at a pre-decided fixed rate.

Home equity line of credit: It is similar to an overdraft facility, and the borrower does not get a lump sum amount. The facility works similarly to a credit card, which can be used repeatedly and then has to be repaid as monthly repayments.

The loan quantum that the lender can offer depends on a host of reasons, including property valuation, repayment capacity, credit score, income flow, and loan-to-value ratio as per the policy norms. Usually, banks in India disburse up to 60-70% of the property value as a loan against property in India.

Note: All kinds of home loans are pegged to EBLR.

1. Banks and other institutions may offer this loan for a tenure of up to 20 years.

2. This loan can cater to vast needs such as home renovation, education, or debt consolidation, etc.

3. Better than other high-interest rate loans, such as credit cards, personal loans, etc.

4. The loan can be extended at both the fixed and floating rate of interest.

Key difference between a home equity loan and a reverse mortgage