What is Mortgage Loan?
A mortgage loan is a secured loan where an applicant borrows a particular amount of money by mortgaging a property. Hence, mortgage loans are also known as loans against property. Here, the property is a collateral against which the loan amount is approved by bank or non-banking financial companies (NBFC). Any residential property, commercial property and immovable properties can be used as security for opting a mortgage loan. Until the borrower repays the loan completely, the lender remains as the actual owner of the property against which mortgage is taken.
The amount received as a mortgage loan can be used to meet both personal as well as professional requirements. There are no restrictions as to how and where the amount should be spent.
Different Types of Mortgage loans
There are different types of Mortgage loans available in India. Based on the mode of interest repayment, mortgage loans can be divided into the following categories –
Fixed Rate Mortgage - Here the interest rate charged on the loan amount remains the same for the entire tenure. Similarly, the monthly principal and interest payment also remains from the first installment payment to the last.
Adjustable Rate Mortgage - Here the interest rate on the loan amount is fixed for an initial term, and then fluctuates depending on the market rise and fall.
Interest only Mortgages – Here the borrower is required to pay only the interest on the loan for a specific duration. The principal amount can be repaid later at a specified date in lump sum. A borrower makes lower payments in the beginning, but may end up making higher payments towards the end.
Based on the nature of contract and terms and conditions between a lender and borrower, mortgage loans can be further divided into the following categories –
Reverse Mortgage - there are different types of home mortgage loans available in the market out of which a reverse mortgage is one, where the borrower need not make any loan repayment. Instead, the bank or NBFC will make payment to the borrower against the mortgage of his / her residential property. A reverse mortgage is ideal for senior citizens who can raise funds by using their property as collateral, if they don’t have adequate income to support themselves
Conventional Mortgage - It is a type of mortgage where the loan amount is not secured and offered by a government entity. Only private lenders, credit unions, and mortgage companies offer different types of conventional mortgage loans. In conventional mortgage loans, the interest rate tends to be higher compared to the government mortgage loans. And the borrower needs to repay both the principal and interest amount at a specified tenure.
Government Mortgage Loans – It is a type of mortgage offered by the government backed lenders. Government backed mortgages are also known as Federal Housing Administration (FHA) loans. Such loans are designed for low-to-moderate-income borrowers who may not be able to avail a loan from the private lenders. There are different types of government mortgage loans available in India which include Traditional Mortgage loans, Home Equity Conversion Mortgages, Energy Efficient Mortgages etc.
Simple Mortgage - Here, the borrower mortgages his/her immovable asset to avail a loan. However, the property does not get transferred to the lender. But, the lender has the right to sell mortgaged property in case the borrower fails to repay the loan on time.
English Mortgage – In this mortgage, the lender is entitled to take the possession of the mortgaged property in case the buyer fails to repay the loan amount on a specific date. Here the mortgaged property is absolutely transferred to the lender. Although the possession rights remain with the lender, the borrower is allowed to either rent the property or occupy it.
Mortgage By Title Deed Deposit – Here, the mortgagor/ borrower mortgages the title deed of the property with the lender to avail a loan. This is also known as equitable mortgage where the title deed functions as security against the lending amount.
Mortgage By Conditional Sale – It is a type of mortgage where the borrower sells the property on the following conditions – if he/she fails to repay the loan at a given date, the sale will become effective. But, on successful repayment of the loan on tie by the borrower, the sale shall become void.
Usufructuary Mortgage – it is a type of mortgage where the asset used as collateral gets transferred to the lender who has the authority to earn profit from it, which can be later adjusted against the principal and interest amount of the loan.
Why do You Take a Mortgage Loan?
In India, mortgage loans serve as the most sought after financial option, if you want to raise funds with the help of your existing property. Instead of selling your property to meet your financial needs, you can use it as collateral to get a loan and fulfill your diverse requirements. A mortgage loan is like a personal loan where you can use the loan amount to fulfill your diversified needs. It’s one of the easiest ways of raising funds. The only requirement is that you have to be the official owner of the property that you want to use as collateral.
Mortgage for First Time Home Buyers
Most first home buyers prefer to opt for a mortgage loan when it comes to purchasing a home. There are different types of mortgage loans available for the first time homebuyers in India. However, it is important for first time home buyers to understand how much down payment he/she can offer and accordingly ask for financial aid. There are conventional and government backed mortgages loans available in the market from which you need to choose carefully after understanding the market condition, comparing the interest rates offered by various lenders, and analyzing your capacity for loan repayment. In this case, a mortgage broker can help you choose the most competitive home loan deal available in the market.
Benefits of Mortgage Loans
There are multiple benefits associated with opting for a mortgage which include –
- A borrower can avail almost 70% of the property value as loan amount
- There is no restriction on the use of the loan amount. It can be used for fulfilling both personal and business requirements.
- Flexible and long repayment tenure that goes up to 15 to 20 years
- Simple eligibility criteria. Both salaried and self –employed individuals can apply for it.
- Receive higher loan amount.
- Loan offered against both residential and commercial properties.
- Minimal documentation required
- Get competitive interest rates