Hi ,
My uncle is seeking a business loan as he needs a good cash flow for his business and my father wants to help him.
The way he can help is, He will put our house document as a collateral/guarantee for the loan my uncle will take. And obliviously my uncle will pay the interest to the bank for whatever amount he uses. My father has a 7 year old home loan on the house and half the amount is pending and he plans to pre pay the amount so he can put documents for uncle\\\’s loan. He is fine with the idea of not getting tax exemption for home loan.
My question is:
1. Is there any other drawback of this kind of deal(other than home loan tax exemption)? Will my dad’s credit history will hamper if my uncle defaults on any of the EMI?
2. what if we want to sell the house?
3. And last my uncle told me that he will be charged interest only for the amount he uses..i.e. if 25 lac loan is sanction and if he uses only 2 lac for 15 days and keep balance with the bank..he will be charged only that amount and for that period. (He plans to use some amount out of total for few days of each month, as I told you its just for solving cash flow problem.)
Just to mention, My father wont gain anything out of this he just want to help my uncle. So even if there minute disadvantage, please let me know.
Please advice.