WHICH IS BETTER - HOME MORTGAGE OR GOLD MORTGAGE?

Emergencies are inevitable, and there can be multiple reasons why a person may be in a situation of a financial crisis in their life. What is crucial at the time of crisis is accurate information and resources. People when get stuck in financial emergencies often tend to apply for personal loans. These loans are tailor-made to fulfil the borrower’s sudden financial needs. However, its high-interest rates often feel heavy on the pockets. Moreover, what if a borrower is not eligible for a personal loan? What if the loan amount you need is much higher than what you qualify for? In such a situation, the thought of using your accumulated savings might cross your mind. But liquidating assets like Fixed deposits and Mutual Funds may not be a profitable investment at all times. So how should you get of this situation?

Certain loan options are available at the banks where you need to pledge your property as collateral to repay the loan. Gold Mortgage or Home Mortgage can be the solution you might be looking for if no other loan option is suitable. Both of these options have their advantages and may prove beneficial for the borrower to fulfil their big and small financial requirements. Here is a detailed pitch about the two types of secured loans for the borrower to understand which one can work better and get themselves out of the cash crunch.

• Collateral

Secured loans are called so because they are protected by security that acts as collateral which lenders hold until the loan amount is paid off completely. If the borrower is insufficient to repay the loan due to any circumstances, the lender has full rights to use the pledged collateral to recover the outstanding loan amount.

Since both the mortgage loans are secured in nature, therefore the borrower has to pledge an asset to the lender as collateral. For a gold loan, you need to pledge gold articles in the form of gold coins or jewellery. Conversely, in home mortgage, you are required to pledge your commercial or residential property as collateral with the bank.

• Rate of Interest 

Interest rate is the primary consideration for all the potential borrowers. Gold loans are offered at fixed interest rates, whereas; home loans are provided at fixed and floating rates. Gold loan interest rates vary from 9% to 24%, and home mortgage rates usually vary from 9.6% to 11.5%.

• Eligibility Criteria

A borrower first needs to be eligible for the loan to sanction it. Lenders are not much stringent about the applicant’s profession, age, credit score, etc., in a gold loan. Thus, this is a preferable option for borrowers in case of a sudden cash crunch. Most lenders approve gold mortgage loan between 18 to 75 years of age provided the gold articles they pledge is as per the lender’s requirements. 

On the other hand, the eligibility criteria for a home mortgage loan are much stringent than the gold. The loan differs slightly from one lender to another. Still, a few common factors that every lender considers before approving the loan application include age, property value, income, stability or continuity of a business, and credit score history.

• Loan Processing Time

Most of the households have gold in their possession for future contingencies. A gold loan is a quick and easy way to get out of a financial crisis. It works almost like an instant loan. To avail of a gold mortgage, the eligibility criteria are lenient and less paperwork, which helps speed up the process. 

Conversely, the loan processing time of a home loan is slightly longer as it takes time for lenders to verify all the property-related documents to sanction the loan amount. Moreover, if the proposed property has multiple owners, each owner will be required to sign a NOC (No Objection Certificate) to get the loan, further stretching the processing time.

• Repayment Tenure

The repayment tenure is the tenure in which the borrower has to repay the loan to the lender. The longer the loan tenure, the shorter the EMI will be, which will make it easier for the borrower to pay back the borrowed amount. 

The borrowers can repay a gold mortgage in a year. On the other hand, the home mortgage repayment period is generally up to 20 years. Since the gold loan repayment period is short, it will have higher interest rates. Therefore, this type of loan is recommended to people looking for a small amount of money. For a huge amount of money, a home mortgage will be the most suitable loan option. Its long repayment tenure will make the EMIs more affordable and help the borrower repay the amount more efficiently.

• Documentation

Gold loan documentation is very quick and simple and does not require much paperwork. Potential borrowers need to submit a few documents such as an application form, passport size photograph, and a copy of proof of identity and residence. For a home loan, the list of documents required for the loan application is a bit long. It requires the loan applicants to sign the loan application form, provide proof of identity and residence, and provide proof of income to check if the requested loan amount can be lent to the borrower or not.

Gold is a valuable asset which most households possess. It is highly liquid and holds great value in the market. Due to its shorter repayment period, it is suitable for small financial crises. Home mortgage usually does not incur high interest rates due to its more extended repayment period. This type of loan is appropriate when a borrower needs a huge amount of money and cannot repay high EMIs in a shorter duration. Muthoot Finance helps you make a wise choice when it comes to finding a suitable loan option for its borrowers. The loan options are tailor-made to fulfil all your small and big financial needs. With its flexible and best loan rates, Muthoot Finance makes every daunting experience an easy experience for its customers.