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What is interim security in Home Loans?

When someone borrows money from a financial institution, then he has to mortgage the property or house until he is able to repay the debts. This mortgaged property is a collateral security for the lender, also known as an Interim security. The bank or the financial institutions take the possession of the property for the complete tenor. At the time of final payment, the papers and possession over the property will be transferred to the original owner. Due to high prices of properties/flats, opting for a Home Loan has become a viable option for many. However, the ability to repay the loan is crucial. And just to safeguard their investment, which is huge financial institutions exercise the right to keep mortgaged property as collateral property.

Collateral security requirement for a Home Loan:

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The collateral security for a Home Loan is required when an individual wants a Home Loan for his property/house. He has to give something as a security in regards to the Home Loan he is securing. Thus, the lender chooses to take the property as collateral. Home Loans are secured loans because the lender assures his funds by the borrower’s mortgaged property.

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The time when interim security is required:

  1. When your property is under construction: 

When an individual is constructing a property, and he lacks the funds required to purchase the property, then he takes the help of NBFCs and other lenders by taking a Home Loan. The lender issues the Home Loan to the borrower to continue the construction but Home Loans are issued on the basis of mortgaging something equivalent to the funds borrowed. This is called collateral security when the financial institution possesses the property until the maturity gets over and the debts have been paid.

  1. Transfer of Balance:

When the Reserve Bank of India waived off all the prepayment charges, a lot of borrowers shifted to other lenders from the existing lenders. In such a case, the lenders demand the collateral security before the borrower goes for Home Loan balance transfer. When the borrower shifts to a new bank from the old bank or switches his NBFC, he has to complete the documentation procedure from the new lender and has to issue the cheque that clears all outstanding debts from the old one. After receiving the remaining loan, the lender gives back the original documents to the owner.

This entire procedure takes almost a month. It involves issuing of cheque from the new lender to the old one after reviewing the papers of the property.

  1. When you purchase a property:

The lender asks for a collateral security at the time of purchasing a property. The interim security is required when the individual takes a loan on the property for a specific period of time and the interim security will be possessed by the lender until the tenor gets completed and the remaining funds are repaid.

In purchasing a property, the individual has to go through all the procedure of registration. It begins with collecting documents from the registrar office to the submission of the papers in the banks or an NBFC. All this procedure takes almost 3 to 4 weeks to get completed. Until the whole procedure gets done, the loan will remain unsecured.

In comparison to public banks, private banks are easier to go with, as they provide leniency over the interim security on Home Loans. You can even opt for Non-Banking Financial Companies; they offer much better Home Loans repayment options than other financial institutions. Also, remember that as a borrower, you should be prepared to fulfil the demand of collateral security by the lenders.

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