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Monday, February 6, 2023

Why are Home Mortgage Loans Better

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What is a Mortgage Loan?

There are times in life when you need funds urgently. You may need it for business, personal or medical purposes. You can take a personal loan or a loan on a credit card but unfortunately, the rate of interest on these is pretty high. However, if you have a property you can avail of a loan against it at lower interest rates. Mortgage loan meaning is simple and as the name suggests, a mortgage loan is a secured, low-interest loan that can be availed of by mortgaging an immovable asset to a lender in lieu of the loan. The asset used as collateral for a mortgage loan can be residential, commercial, or any non-agricultural property. The lender can sell of the property to recover their money in case of non-repayment of the loan.

What Are the Different Types of Mortgage Loan?

Mortgage loans are mainly of three types. They are,

  • Home loans
  • Commercial property loans
  • Loan against properties

Home mortgage loans can be used for business expansion, home renovation, and paying off other expenses. You can get a home loan or commercial property loan only to buy a home or commercial space. But home mortgage loans don’t have any such restrictions. 

Types of Interest Rates on Mortgage Loans

 The interest on the mortgage loan, can either be fixed or of a floating nature. Let’s take a deeper look at the two.

Fixed Interest Rate: A fixed interest rate on mortgage loan meaning is easy. Here the interest rate remains the same for the entire loan tenor. A fixed interest rate is usually applicable if you opt for a shorter loan tenor. While for a longer tenor mortgage loan, you may not be able to avail of a fixed interest rate. The interest component of the EMI decreases every month without changing the overall EMI amount as the interest is calculated on the outstanding balance.

Floating Interest Rate: As the name suggests these interest rates change in tandem with the prevailing market rates. This is a rate of interest that changes periodically and it is directly linked to the Marginal Cost of Funds based Lending Rate or MCLR. In a fluctuating interest rate, your EMI is recalculated by the lender as per the change, and it remains the same until the next rate change. The change in interest rate also leads to a change in your monthly installments.

Interest-only Mortgage: Here the borrower is required to pay only the interest on the loan for a specific duration. The principal amount can be repaid later. This is an option if the borrower is expecting to receive payment in the future.

Things to Consider Before Taking a Mortgage Loan

If you are planning to avail of a mortgage loan, here are a few things you need to consider:

Loan Amount

The mortgage loan amount depends on the registered value of the property pledged as collateral. Most of the banks and financial companies sanction 40% to 60% of such loans based on the property’s condition and age.

Rate of Interest

You can select either a fixed interest rate or a floating one depending on your loan amount and tenor of repayment. 

Tenor

Banks offer repayment periods for such loans up to 15 years. However, you can negotiate with your lender for a longer tenor for easier loan repayment. 

Fees and Charges

Mortgage loan comes with a variety of fees which includes processing fees, application fees, documentation charges, loan overdue fees, property inspection fees, loan conversion fees and late payment penalties. 

Repayment Mode

The loan repayment mode may vary from bank to bank. Though most banks offer EMI options, other repayment options may also be available. Thus, before getting a loan, clarify this with your lending bank.

Eligibility Factors

Your employment type, residency status, age, income, property condition, and other factors, decide the loan criteria for you. So check if all is in order before applying for the loan.

Read More: Mortgage and Charge of Immovable Property As per Transfer of Property Act, 1882

Benefits of a Mortgage Loan

  • Mortgage loan meaning is a loan where you just mortgage your property but continue to remain the legal owner of the property while you use the funds from the loan 
  • Mortgage loans or loans against property are easily approved by lenders after the appraisal of the property since they are secured loans
  • The interest you pay on a mortgage loan is much lower than that of a personal loan and this makes them popular among the borrowers
  • You get flexible repayment tenors on mortgage loans by speaking with the lenders
  • There is no restriction on how the funds got from the loan can be used. It can be used for business expansion, weddings, children’s education or medical expenses.
  • Mortgage loans are available for longer tenors lasting up to 30 years and can be repaid in affordable monthly payments or EMIs as discussed with the lender.
  • A mortgage loan can be customized to suit the requirements of the borrower.

Summing Up

Not everyone understands mortgage loan meaning and its benefits, but it definitely is a secured low-interest loan that people can avail of during a financial emergency by pledging any immovable asset as collateral. However, if proper and timely repayment of the loan is not done, the lender has the right to seize the property and sell it to recover the amount.

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