It is the new product in the home loan industry. The name itself suggests- where a mortgage loan is given in the form of overdraft facility it is termed as “Mortgage O/D”. It is also referred to as the “LAP O/D” product in the home loan industry. (LAP stands for Loan Against Property). The product is majorly implemented to meet the working capital requirement of the business class. Hence bank’s mortgage o/d product is available only for self -employed individuals/companies. Self – employed means proprietor, partner of the partnership firm, director of the public and private limited company, entrepreneur, freelancer, professional – doctors, engineers, etc. Salaried individuals are yet to be benefited from this product.
There are only a few banks in the industry that does mortgage o/d. Let’s understand the product in depth.
The mortgage o/d is similar to the mortgage loan. Mortgage o/d is also provided against the mortgage of property which can either be residential or commercial. It allows the loan borrower to withdraw only the required amount of funds from the loan account. This means that he is liable to pay interest only on the amount withdrawn. But as per banking policy, a loan borrower has to take a mandatory disbursement of a minimum of 10% of the loan sanction amount. This condition of minimum amount disbursement may differ from bank to bank.
Facilities in mortgage o/d are similar to normal overdraft account, as an interest to be charged only on the used amount i.e. the loan amount withdrawn, no conditions on prepayment of the loan, no foreclosure charges, no restrictions on the number of times pre-payments done, etc.
However, the applicant of mortgage o/d loan has to compulsorily open a current account with the loan applying bank if he does not have any existing banking relationship with it i.e. has no existing current account with the bank.
The rate of interest for mortgage o/d is generally 1%-2% higher than the mortgage loan. Until recently mortgage o/d was available only to self-employed individuals but with few banks extending the product to salaried individuals as well, salaried can also enjoy the benefits of lap/mortgage overdraft.
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