Taking a loan is an important financial decision.
When you need funds for major expenses like buying a house, a child’s education, business expansion, or other needs, you must choose the right loan that fits your requirements. Two popular loan options are mortgage loans and gold loans.
Read on to learn more about mortgage loans and gold loans to decide which one is better for you.
Understanding Gold Loan and Mortgage Loan
Using a mortgage loan, you may borrow up to 60–70% of the value of your home or business from a bank or other financial institution by using it as security. The loan amount could be Rs 60-70 lakhs on a Rs 1 crore property. You repay with interest in EMIs over 15-30 years.
A gold loan sanctions about 70-80% of your gold jewelry’s market value as loan amount quickly in 1-2 days when you pledge the ornaments. On pledging 50 grams of gold worth Rs 2 lakhs, you may get a Rs 1.5 lakh loan for six months to 2 years tenure.
Deciding Between Mortgage & Gold Loans
When considering a loan, you must decide between a mortgage and gold based on your financial requirements and repayment capacity. Here are some key factors to look for when choosing between the two:
Interest Rates: Interest rates on mortgage loans are often more significant than gold ones. Your gold collateral procures gold loans. So, for the same loan amount, the annual interest costs are comparatively lower in a gold loan.
Maximum Loan Amount: The maximum loan amount depends on the asset value you pledge. Mortgage loans allow you to avail yourself of substantially higher loan amounts if you own a high-value property.
With gold loans, the scope to get very high-value loans is lower if you own expensive gold jewelry.
Eligibility Criteria: To be eligible, mortgage loans need proof of stable income, property documents, and a good credit record. Self-employed individuals and NRIs are also eligible to apply for mortgage loans.
Gold loans have more relaxed eligibility norms. Income proofs are rarely mandatory as a gold loan is given against collateral. Only identity and evidence of gold ownership are sufficient in most cases.
Hence, gold loans are accessible in more comprehensive sections.
Loan Tenure: Mortgage loans allow tenures of up to 30 years. You gradually repay in EMIs over these decades, allowing an affordable repayment structure. In contrast, Gold loans are much shorter, from 6-month to 2-year periods.
Processing Time: Gold loan approval is quicker, within 1-2 days, because less documentation is required when gold jewelry is pledged. Mortgage loans involve property checks and legal procedures; hence, it takes longer to disburse the amount.
So, if urgent funds are needed, gold loans can be processed faster.
Risk Factors: If you default on mortgage loan repayments, your property is at risk of possession, auction, etc.
Legal processes must be followed before the lender can confiscate your pledged asset. In gold loans, if overdue amounts remain unpaid for long periods, the collateral gold can be auctioned much quicker.
Repayment Structure: Gold loans offer repayment flexibility – you can pay interest in installments and settle the principal as a one-shot payment. This allows aligning repayments as per your income flows.
Mortgage loans mandate a fixed EMI structure every month for the tenure. Part or full prepayment entails some charges.
Conclusion
Mortgage loans meet long-term needs against property, while gold loans provide shorter-term funds against gold collateral. Assess your cash flows, risk tolerance, and loan purpose to choose the better option.
When making this critical decision, you can trust Karnataka Bank Ltd (KBL) for gold and mortgage loans.
KBL offers attractive interest rates, transparent processes, and flexible repayment options. With over 90 years of experience serving customers, KBL prioritizes responsible financing to help you meet your goals.