Types of Collateral Assets to Secure a Favorable Home Loan

Constructing your dream home or renovating your existing home into a lavish and comfortable place to live in requires a substantial financial investment, potentially depleting your savings. In such instances, opting for a home loan emerges as a strategic decision, offering the financial support needed to turn your vision into reality.

To avail yourself of the home loan, the first step is to check your loan requirements. Lenders, in their commitment to ensuring a secure lending environment, necessitate a verification process. As a safeguard against potential defaults, these financial institutions require collateral. 

If you are wondering what a collateral is or what collateral assets you can secure for a home loan, then worry not! We have got you covered. This blog will provide the details regarding the same.

What is a Collateral?

Collateral refers to an asset or property you can offer to the lender to secure a loan. Anyone planning to avail themselves of a secured loan must prove that they can pay off the borrowed amount with ease and provide lenders with the assets they can sell off in case of any default.

Collateral can take various forms, including real estate, vehicles, marketable securities, cash savings, or other valuable possessions. The use of collateral provides lenders with reassurance and allows you to easily access loans with more favorable terms and interest rates compared to unsecured loans.

Types of Collateral Assets to Secure a Home Loan

When you plan to buy a home, you can use a variety of assets as your collateral. Also, depending on the lender, you can leverage the equity that you possess in your collateral assets. Some of the most used collateral assets are listed below:

• Real Estate

To secure a home loan, you can use real estate as collateral. The equity in your home, or even a fully owned house used as collateral, represents one of the most prevalent and straightforward forms of security for a home loan. Lenders usually consider real estate collateral as it holds great value over time. 

However, it is crucial to recognize that pledging your home as collateral entails the risk of foreclosure in the event of a default. This risk underscores the gravity of meeting the financial obligations associated with the home loan to ensure the continued security of your property.

• Valuables

To secure a home loan, you can use valuables and collectables like antiques, jewelry, etc., as collateral. These items, known for their high intrinsic value, can serve as an alternative form of security in the lending process. 

However, lenders typically require you to undergo a collateral appraisal when opting for such valuables as collateral. This comprehensive assessment is conducted to confirm and appraise the true value of the assets, providing the lender with a clear understanding of the worth of the valuables being pledged.

• Automobiles

For some loans, you can use your vehicles as collateral. While not as common as real estate collateral, leveraging the equity in an automobile can contribute to securing more favourable loan conditions. The issue with using a car as collateral is that its value tends to depreciate with time. Thus, the lender will entertain it less.

• Stocks and Bonds

Numerous investment forms, such as stocks and bonds, can be used as collateral to secure a home loan. This option allows individuals to retain ownership of their investments while leveraging their portfolio's value to secure favourable loan terms.

Unlike real estate collateral, stocks and bonds are not too popular because their value keeps on fluctuating with time. The lender can find themselves in a problematic situation in case of repayment default.

Get a Reliable Home Loan

Now that you know the ways through which you can make it easy for you to get an affordable home loan, it is crucial for you to apply for a loan from reliable lenders. Tata Capital is India’s leading Non-Banking Financial Company that offers comprehensive and customised home loans to meet your requirements. 

The home loan from Tata Capital has bid farewell to the traditional loan process where you had to maintain piles of documents and wait for days to get the loan request approved. With a few clicks on your smart device, you can apply for the loan and get the amount disbursed in a few hours. Check Tata Capital’s website for more details regarding the home loan.