There are times in everybody’s life when a situation demands a huge expense and there is no easy way to fund it. Breaking into your savings is one option but for someone who has limited savings, this avenue too may be closed. In such situations, any property that is in your name can be of great value. Thanks to the collateral (in the form of property) securing the financing, the interest rate on loan against property is typically lower than what you can avail of with unsecured loans.
One of the less understood factors that affect the interest rates here is the NMI or Net Monthly Income. Here is a simple primer that will help you unravel this aspect.
What is NMI?
Despite the property that is used as collateral to secure the loan, the lender still takes into consideration the NMI of a loan applicant. The NMI or Net Monthly Income is the income you bring home after all your legal liabilities have been paid off. These liabilities include your existing loan repayments, taxes, bills due etc. The NMI not only tells the lender whether or not to sanction the loan but also plays a role in helping them determine the interest rate on loan against property that they offer to you.
For example, banks may place your EMI to NMI ratio at 50%. This means that they will allow you to take up an EMI of 50% of your NMI to ensure that you have enough income left over to pay off recurring monthly expenses. You will often find this mentioned in the loan against property eligibility calculator given by the lender. Use the ratio mentioned so that you can calculate how much loan/ EMI you can avail of given your income.
The loan amount and also the EMIs allowed automatically increase if your NMI is higher. For example, a bank may offer a 50% EMI to NMI ratio for an individual earning 4 lakhs per annum but raise the ratio to 70% if the NMI is 20 lakhs per annum. These criteria too are usually mentioned in the lender’s loan against property eligibility calculator.
Taking a loan without income proof
If your low NMI is the aspect that does not match the loan against property eligibility calculator, then there are still options you can consider if you have property to put up as collateral. The first is that you can reduce the overall loan amount that you are seeking. Typically, for small loan amounts, the lender may be willing to just consider the collateral (property) and overlook your income. You may even be able to get such loans without providing income proof. You will have to dip into savings to fill the gap between the loan amount and the actual expense in this case but it still helps because you can avail of a loan to cover some part.
The second option is to apply for a loan against property with a co-applicant who has high enough NMI. In such case, the co-applicant is taken as the primary applicant. And the loan is given on basis of their NMI records and the property. Keep in mind that the co-applicant also shoulders the liability for the loan so you must ensure. That you make EMI payments on time without fail to safeguard them from the consequences of unpaid debts.
Ensuring that your bank account has a steady and adequate balance at all times helps. In the loan approval process because it shows the lender that you have stable finances. Remember that you will need to provide bank statements as part of the documentation for the loan approval. It also helps to maintain a good credit history so that your credit score is high. A high credit score instantly tells the lender that you are responsible. About your financial liabilities and this helps a lot in the loan sanctioning process.
This is how the NMI affects the interest rate on loan against property. Now that you understand this complex aspect, you are aware of the importance of showing. All forms of regular income that you earn to demonstrate your capability in paying back the EMIs.