Can I get education loans on home loan property?

When taking an education loan, we all look for the best deal. To get an education loan with a decent rate of interest, higher repayment tenure, and other benefits, it is suggested to take a secured loan by pledging collateral. Indian families own some or the other property, whether an open plot, a house, or agricultural land. These tangible properties are very creditworthy; students usually pledge this property to obtain an education loan. But problems arise when the property is pledged as collateral to take another loan such as a home loan. 

If this is your case, you are at the right spot because in this article we will answer the most commonly occurring question among students- " Can I get an education loan on a home loan property?"

The answer to that question is - Yes, banks give an education loan on collateral that is already under another loan, be it a home loan or an education loan (for anyone other than yourself).

But will you get a good loan amount because the property is pledged for a home loan? Yes, you can but,

How much you can get will depend on:

• The current market value of the property.
• The pending amount to pay off the existing loan.
• The lender you’re taking your education loan from.

However, a property already under a personal or business loan cannot be pledged again before you clear off the loan.

We will now learn more about home loan properties and other details related to it, beginning with its' definition.

A home loan property is a property that is pledged to take a loan to purchase a house or build one. It is that property that helps buy a home. 

Let us explore some scenarios in which a home loan property is used to pledge for an education loan and if that works or not:

Scenario 1 - Assume your parents have taken a home loan by putting the home itself as security. Suppose 50 lakhs were taken as a home loan 15 years ago and have been paying EMIs ever since and have paid off 40 lakhs towards their home loan.  

So, the question is will the banks accept and provide you with an education loan on this property (Home)? As already answered, banks can provide an education loan on such property. 

Scenario 2 - Your elder sister has taken an education loan for higher education by putting your parent's home as collateral security. She had taken a 50 lakhs collateral education loan 5 years ago and has paid off 40 lakhs towards her education loan.

Now again the question is, can banks provide you with an education loan for your higher studies on the same property (Home)? Yes, banks can provide an education loan on such property. 

The home that was pledged as security in both the above scenarios may be referred to as a home loan property by different people. I hope this must have given you some clarity on which all collateral/property is referred to as "home loan property or property already pledged". 

With that, now you know you can pledge collateral that is already under a home/housing loan as security for an abroad education loan.

More information about education loans on home loan property is given in this short video of the Loanflix series made by our founder Damini. Please watch it to get more clarity.

There is a common misconception among students and parents that a home loan property cannot be pledged as collateral security for a collateral education loan. This is beacause we think that property would be rejected. But that is not entirely true. After careful calculation and consideration, education loan will be given depending on the above mentioned factors.

Due to the lack of information regarding the various clauses of education loans, students are not aware that they can get an education loan on a home loan property as well. As a result, students end up opting for unsecured education loans, which have higher interest rates.

The standard eligibility criteria will be the same for a student applying for an education loan like their past academic records, university, the country they are going to, etc. 

Lenders will also check your and your co-applicant's CIBIL score and if you've been paying your home loan EMIs on time, it will reflect on your CIBIL report which will work in your favour.

To calculate the considerable amount on home loan property, different lenders use different formulas. The following are the two key factors that go into determining the amount of a home loan property-

• The market value of the home loan property being pledged.
• The pending amount that has to be paid to clear off the loan.

The above-mentioned factors greatly affect the final education loan amount to be granted by the banks. 

It must be clear by now that banks do accept home loan property for education loans. However, banks will not give education loans on the original value of the property. Apart from the pending loan amount to be paid against your home loan, the respective bank will calculate a certain percentage as risk margin, and deduct this value from your actual collateral value. You will then get an education loan on the balance amount.

For example - Suppose you have a pending loan of 10 lakhs on collateral whose current value is 50 lakhs. So the formulae to calculate the considered value of the collateral is:

Current collateral value- (risk margin x pending loan) = considered value for education loan. 

Let’s say the risk margin here is set by the lender is 1.5

Put values in the formulae you get 

=50-(1.5x10)

=35

So here, the collateral value which the lender will consider is 35 lakhs and not 50 lakhs. 

Mind you, different lenders keep different risk margins for calculation. If you have a home loan with any bank, you can use this calculator to calculate your considerable amount on home loan property.

You can also get in touch with our team at WeMakeScholars, as they can tell you not only how much you can get on the home loan property but also assist you during your entire education loan process. 

It is usually advised to get your education loan from the same bank your home loan is currently with because it will eliminate the legal and valuation of the property, since the bank has all the collateral documents with them already, the loan process can be done faster.

If you take an education loan from a different bank then you are required to transfer your home loan to the bank where you’re taking an education loan from. This may take longer than expected, which is why you should apply for your education loan early.

To answer the question, which banks are best? Government banks undeniably provide the best deal on education loans like lower interest rates, payment-free moratorium periods, etc. If your home loan is currently with a government bank like SBI, BOB, etc, it is better to apply for an education loan in the same bank.

If your home loan is currently with a private bank, it is better to transfer it to any of the government banks and then apply for an education loan in the government bank. The effort will pay off in the long term, as you will save lakhs of rupees thanks to the government banks' reduced interest rates.

In most cases, candidates are well aware of the benefits offered by the Government banks, still, many of them hesitate to process through Government banks due to a lot of misconceptions in the market like delayed loan process, delayed responses, etc. 

Yes, Government banks may take longer to process your education loan, however, this is not the case when you apply via WeMakeScholars. We work closely with banks to ensure that your loan is approved in the shortest period possible.

Lower rate of interest- If you are opting for a loan in the same bank where you have your existing loan, you are helping the lender to reduce their risk as they already have all your collateral documents and for that reason, banks provide lower rates of interest. In the case of public banks, loans start from as low as 8.30%.  Which helps you to save lakhs of rupees in the long run.

Higher value of the loan- once you calculate your current collateral value as per the calculation given above. With this loan offer, now you are eligible to get 65-100% of the current collateral value. To maximize your collateral margin please reach out to our financial officers by requesting a callback.

Longer repayment duration- The benefit of a loan against property provides you with an easy repayment schedule and long repayment tenure. You can extend your loan repayment duration up to 15 years and repay your loan as per your financial comfort. For your, convenience WeMakeScholars provides you best use EMI calculator where you can choose your EMI as per your budget. 

Longer moratorium period-  This is also called the grace period, which is your course duration plus 6 months which can be extended up to 1 year where you have the choice not to pay anything during the moratorium period it's all up to you, you can choose to pay it but not mandatory to pay.

Tax benefits: Applicants who take an education loan on loan property can also claim tax benefits under Section 80E of the Income Tax Act. The deduction is available for up to eight years or until the loan is repaid, whichever is earlier.