How will you fulfil your child's longstanding foreign education dream?

Taking a mortgage loan will provide you with sufficient funds to finance your child’s most important ambitions.

You will always remember the moment you first set eyes on your child. You gazed on his beautiful face, counted ten perfect fingers and toes, marvelled at the soft tuft of hair on his head…and you resolved that you would love your child till the last breath was left in your body.

Over the years, this promise translated into buying everything your child ever wanted, enrolling him in the best school, encouraging him in his sporting and musical pursuits, and ensuring that he had the best advantage in life. But now, your child is growing up fast and he has recently professed a desire to finish his education abroad.

Instead of meeting his announcement with joy, you are saddened – and a little frightened. Your precious baby is now grown up enough to go abroad and study, but you do not have the financial resources to help him do so. You do have some money saved up in the bank, but it is only a fraction of the total sum needed to finance his foreign education dream.

What can you do? Will you crush his dream and have him resent you forever? Or will you look for another avenue to raise sufficient funds – such as taking a mortgage loan?

Why take a mortgage loan?

A mortgage loan is a loan against property. It is a loan that uses one’s owned property as collateral or security to furnish the funds against it. It is easily available and quickly processed by major banks and financial institutions in India.

You can use the large fund of money provided by a mortgage loan to pay for your child’s foreign education. The corpus is sufficiently large for your child to study abroad and even specialise in the stream of his choice. So whether he wishes to become a doctor, an actor or even an artist, he can rest assured in the knowledge that his parents have set aside an adequate corpus of money for his education.

But while you go ahead and make your child’s dream come true, there are some points you have to keep in mind. Take the mortgage loan only if you are sure of repaying it. Checking your loan eligibility before you proceed will save a lot of time as well. 

What is ‘credit score’ and how does it work?

Understanding how credit score works is crucial to knowing your credit worthiness and the rate of interest you will be charged on debts.

In today’s world, with every bank and financial institution offering loans for personal as well as professional needs, taking a loan seems like a cakewalk. However, things are not as easy as they first appear. You might have a large income from your job or business, but that alone does not guarantee that you will get a loan right away at the interest rate you desire.

To understand how the loan system works for you as the customer, it is important to first understand a concept known as ‘credit score’. This is a number derived from one’s personal credit history: the type of past credit, payment history, new credit taken, credit repaid and length of credit. These collectively determine one’s credit score, which is the single most important factor that banks and financial institutions use to determine if the applicant is a suitable candidate for mortgage loans, credit cards or personal loans.

Not just credit worthiness, the credit score can also help the lending institution determine whether the application for a mortgage loan, for example, should be approved or not. If it is approved, the lender will also deliberate on the rate of interest to be charged on that loan.

Those with a low credit score often find it difficult to get approvals for loans, and may also have to pay a higher rate of interest on the same. The key point to remember is that the credit score is considered before the credit is extended. Hence, it is a prudent move to build a better score before approaching a lender for a mortgage loan.

How to build a good credit score:

* First time applicants may not have a past loan history, but the lender will consider such factors as whether the applicant has any owned property that he or she can use as collateral.

* Those with previous loans can build a good credit score by repaying the loan faster than the loan term period. This can be done by repaying larger amounts (exceeding the EMI amount) periodically.

* Not defaulting or missing payments is key. Lenders study the pattern of defaults closely, and compare the same with financial statements of the same period. The score will be automatically lowered if the lender observes sufficient income but payment defaults, or large borrowings from private sources at the same time that the loan is active.

* Repaying credit card bills on time is crucial. Lenders study how many credit cards the applicant has, what is the repayment pattern like, how much monthly spending takes place on each, etc.

* Another key area of scrutiny is whether the applicant is embroiled in any cheating and/or forgery cases, or whether there are bankruptcies or foreclosures against the applicant’s name.

* Even such payment records as utility bill payment records are closely monitored.