Difference 2nd Mortgage and Caveat Loan?

The paucity of funds is a problem that affects many businesses at some point in time or another. While there are many funding options available for you in the market, availing a loan against the property is one of the most popular options amongst the business owner. When you decide to take a loan against your property, there are several choices available to fulfil your urgent requirement for the money—two of the most popular options being Caveat Loan and Second Mortgage. Now, in order to decide which of these two options is better for you, you must understand the difference between them perfectly.

Application process: – The application process for a caveat loan is extremely simple and straightforward. In many cases, the loan application will be approved within a few working days. But this is not the case with second mortgages. The lending institution will treat it as a first mortgage only and would require you to complete a lengthy application process. The eligibility criteria for a second mortgage is extremely strict as compared to that for a caveat loan.

Security: – In case of a caveat loan, the lender registers a caveat against the property which prohibits you from selling it or mortgaging it further. This reduces the risk for the lenders as they can liquidate the property to recover their dues. But the second mortgage is placed below the first mortgage and in case of default, the dues for the first mortgage will be settled first.

Duration: – Caveat loans are short term loans which must be paid within a period of up to 36 months since the date of disbursal. But this is not the case with the second mortgage as the repayment period can extend up to several decades. As such, the EMIs for the second mortgage are more affordable.

Flexibility: – There is no doubt that a second mortgage offers you significant flexibility over your finances. But Caveat loan allows you to access the funds quickly, a feature which comes in handy during financial exigencies. Additionally, a caveat loan is a much simpler loan as compared to a second mortgage.

Now that you know the differences between a second mortgage and a caveat loan, making a final decision will be much easier for you. Always weigh the pros and cons before making a final call.