Types of Mortgage Loans

A mortgage loan is a secured loan where an applicant borrows a certain amount of money by mortgaging property. Hence, mortgage loans are also known as loans against property. 

Here, the property is collateral against which the loan amount is approved by banks or non-banking financial companies (NBFC). Residential properties, commercial properties, and immovable properties can be used as security for mortgage loans.

Until the borrower repays the loan completely, the property provided as mortgage will be in the lender’s ownership and the value of this mortgaged property will determine the amount you receive as loan.

Unlike home loans, 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.

There are various types of mortgage loans based on various factors. Let us take a look at these:

Different Types of Mortgage loans

There are different types of mortgage loans in India and can vary based on criteria such as interest repayment, nature of the contract between the lender and borrower, etc.

Types of Mortgage Loans Based on Interest Repayment

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 loan tenure. Additionally, the monthly principal and interest amount also remains the same 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. So the amount can vary throughout the term.

• 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. This is a feasible option if the borrower is expecting a lump sum payment in the future.

Types of Mortgage Loans Based on Nature of the Contract

Based on the nature of the contract and terms and conditions between a lender and borrower, mortgage loans can be further divided into the following categories -

• Simple Mortgage 

  Here, the borrower mortgages his/her immovable asset to avail a loan but the property does not get transferred to the lender. However, the lender has the right to sell mortgaged property in case the borrower fails to repay the loan on time.

• English Mortgage

   In this type of mortgage loan, the ownership of the mortgaged property is transferred to the lender who is entitled to take possession of the mortgaged property in case the buyer fails to repay the loan amount on a specific date. 

  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 

  In this type of mortgage loan, the borrower mortgages the title deed of the property to 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 loan where the borrower sells the property on the condition that if the loan is not repaid by the said date, the sale will be effective. But, on successful repayment of the loan on time by the borrower, the sale shall become void.

• Usufructuary Mortgage 

  This is a type of mortgage loan 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.

• Reverse Mortgage 

  In case of reverse mortgage loans, the borrower need not repay the loan. 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 individuals who can raise funds by using their property as collateral, if they don’t have adequate income to support themselves. As of now, it is only available for senior citizens and is not commonly offered.

Importance of Mortgage Loans

In India, mortgage loans serve as one of the most sought-after financial options, 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. 

And unlike other secure loans such as home loans, a mortgage loan is like a personal loan where you can use the loan amount to fulfill your diversified needs without restrictions. 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