All you need to know about mortgage loan

Mortgages refer to the act of offering something as collateral for a loan. Secured loans may be referred to as mortgages. Generally, all types of mortgages are secured loans. This means the borrower gives the lender security over the property.

What is a mortgage loan?

Loans secured by property are also known as mortgage loans. It is possible to refinance or buy a house with a mortgage loan. An individual who refinances a property gets a new loan while the original loan is being paid off. This often happens so that the terms of the loan can be improved.

Mortgages: Meaning and how do they work?

Using a mortgage, individuals and businesses can purchase real estate without paying the entire price upfront. Over a specified number of years, the borrower repays the loan plus interest until the property is theirs free and clear. Liens against property are also known as mortgages. The lender can foreclose on a property if the borrower stops paying their mortgage.

Homebuyers pledge their house to their lender, which then has a claim on the house. If the buyer defaults on their financial obligation, the lender will still have a stake in the property. The lender may evict the occupants of a property, sell it, and use the sale proceeds to pay off the mortgage debt.

Mortgage loan: Features

We now understand what a mortgage loan is and how it is calculated, so let’s examine some of its important characteristics.

• A lender may not accept all types of properties, real estate or otherwise.
• Lenders generally accept properties that are fully constructed, for instance, your house or a commercial shop.
• Marketable properties must be freehold properties, meaning they give their owners full rights to transfer ownership.
• As your home serves as collateral for the loan, a mortgage loan is considered a secured loan.
• There are long-term mortgage loans lasting up to 30 years, which can be repaid in affordable monthly payments or EMIs.
• It is possible to customise a mortgage loan to fit your needs.

 

Types of Mortgage loans in India

Fixed rate mortgages

The term “fixed-rate mortgage” describes a loan with a fixed interest rate for its entire term. In other words, the interest rate on the mortgage remains constant throughout its entire life. A fixed-rate mortgage is a popular option for consumers who want to know how much they’ll pay each month.

Conventional mortgages

Generally, a conventional mortgage or conventional loan is any type of home buyer’s loan that is not guaranteed or offered by a government agency. Traditional mortgages are available from private lenders, such as banks, credit unions, and mortgage companies. 

Variable rate mortgages

Variable-rate mortgages are mortgages whose interest rates are not fixed. In place of that, interest payments will be adjusted at a level above a specific benchmark or reference rate, such as Prime + 2 points. Over the course of a mortgage loan, lenders can offer borrowers variable interest rates. An ARM can also include both an initial fixed period and a variable rate that resets periodically afterwards.

Most hybrid ARMs are 5/1 ARMs, which have a 5-year fixed term followed by a variable rate for the remainder of the loan (usually 25 more years).

Mortgages loans: Eligibility

Loans against property are available to the following individuals:

Salaried individuals

• Individuals who hold a permanent position within a government agency or a reputable company.
• At the time of loan commencement, the applicant should be at least 24 years old and at or near retirement age.

Self employed individuals

• Individuals who file income tax returns are eligible to apply.
• At the time of loan commencement, the applicant must be over 24 years old, and at maturity, they may be up to 65 years old.

Self employed professionals

• Only professionals (doctor, engineer, dentist, architect, chartered accountant, cost accountant, company secretary, or management consultant) can apply.
• In order to qualify for a loan, the applicant must be at least 24 years old at the time of application and at least 65 years old at the time of maturity.

Mortgage loan: Interest rates

Your mortgage loan can be paid off either at a fixed interest rate or at a floating interest rate. Let’s learn what the differences are.

Fixed interest rate

Throughout the life of the loan, a fixed interest rate remains the same. If you choose a shorter loan term, you might be able to opt for a fixed interest rate. It may not be possible to get a fixed interest rate for a long-term mortgage loan.

Floating interest rate

According to current market rates, interest rates are adjusted. On the lender’s website, you can get an idea of the current interest rate, but you cannot predict it. This is an interest rate that can fluctuate periodically and is directly linked to the Marginal Cost of Funds based Lending Rate.

Mortgage loan: Benefits

Here are some of the benefits of taking out a mortgage loan. 

• While you use the funds from the loan to fulfil your needs, you remain the legal owner of your property.
• As secured loans, mortgages are easy to get approved
• Mortgage loan interest rates are lower than personal loan interest rates
• The repayment period is flexible