Types of Mortgage Loans

Financing the purchase of a house or getting cash to finance short-term needs can be made simple and easier by mortgage loans. A huge number of financial institutions provide mortgage loans and serve different needs.

The aim of this article is to enlighten you on the different types of mortgage loans available in India and their relevance to the Indian financial system.

What Is the Definition of Mortgage Loans?

Mortgage loans refer to funds borrowed that use the property as collateral by an individual. Here, the financial institution maintains ownership rights until all the money borrowed has been repaid. These are commonly given when a person wants to buy a house, make some home improvements, or cater to some business purpose like development, scaling, capital upgradation, etc.

Different Types of Mortgage Loans Available in India

Different types of mortgage loans have been tailored for different financial standings and use in India by the Indian financial makers, namely:

1. Home Loans

Home loans are used for:

• Buying a new property.
• Building a house on land that belongs to someone already.
• Renovating or fixing an old house.

Here are some features:

• Lenders start charging from 8.5% interest rates per annum.
• They can go up to 30 years.
• To qualify for a home loan, one has to depend on monthly earnings, one’s CIBIL score, as well as one’s property valuation.

2. Loan Against Property (LAP)

LAP allows borrowers to use their property as collateral for personal or business purposes.

Here are some features:

• You may get up to 60% to 70% of its market value as credit.
• Interest rates vary between 9% to 12%, which are a little bit higher than those offered on home loans.
• Tenure periods range from 10 to 20 years.

3. Reverse Mortgage Loans

Reverse mortgage loans are meant for elderly property owners who want access to their equity without having to move out of the house.

Here are some features:

• Instead of getting one lump sum at once, monthly payments are issued.
• This is a very good option for retired people who do not have a fixed income source.

4. Commercial Property Loans

These loans are granted for the purchase or construction of commercial properties.

Here are some features:

• The loan amounts are higher compared to home loans.
• It is suitable for business purposes or for self-employed people.
• The term can be extended for up to 15 years.

Also Read: A Complete Guide to the Different Types of Loans Available in India

Major Mortgage Loan Types and their Interest Rates

The mortgage types that you should choose will solely depend on your financial objectives. Here is a comparison of their interest rates since this essentially defines your loan details:

• Home Loans are used for buying or building a house (interest rates range from 8.5% to 9%).
• A Loan Against Property is used for personal or business needs (interest rates range from 9% to 12%).
• Reverse Mortgages are used for retirement income (interest rates range from 8% to 9%).
• Commercial Property Loans are used for buying offices or shops (interest rates range from 9% to 12%).

Also Read: Understanding Interest Rates: Fixed vs. Semi-Fixed vs. Floating

Key Considerations Before Applying for a Mortgage Loan

It is important to examine your financial situation and select a loan that would fit your needs. Here are some pointers:

• Interest Rate — Shop around for lenders with competitive rates. Just a .5% variance can prove to be a great deal if looked at over time.
• Loan Tenure — Shorter tenures tend to result in higher EMIs (equated monthly installments) but lessen the overall interest paid.
• Credit Score — Approval chances and better rates are enhanced by a score above 750.
• Processing Fees — Processing fees are usually .5%-2% of the total loan amount.
• Legal And Technical Checks — Check that the property has no legal constraints and be sure it has a clear title.

Advantages Of Analyzing Various Mortgage Loan Options

Opting from the many forms of mortgage loans available will enable you to:

• Customize your loan to your situation.
• Optimize your repayment options based on your financial circumstances.
• Access competitive interest rates depending on the nature of the mortgage.

How To Apply For Mortgage Loan

• Research and select the right mortgage loan type for your needs.
• Compare interest rates and processing fees across lenders.
• Gather documents like income proof, property details, and ID proof.
• After completing this step, click Submit Application Online or walk into any branch of the bank that is convenient for you.
• Upon completion of property and credit checks, wait until approval before disbursement.

The Bottom Line

As someone aspiring to own their first home or as someone who needs finance for their new business/organization, understand that there is always a mortgage loan designed specifically for you. Just follow the guide above, know the type of mortgage loan that suits you best and keep your financial goals as well as monthly budgeting in mind.

If you’re unable to calculate your EMIs, search for an online EMI calculator. This free online tool will easily help you calculate your monthly expenses timely.

Apply for a mortgage loan today itself and see how your dreams of building an empire or a humble adobe are brought to life. Good luck!

FAQs

Q.1. What are the 6 types of mortgages?

A. The 6 types of mortgages, different from mortgage loans, are as follows:

• Simple Mortgage
• Mortgage by Conditional Sale
• Usufructuary Mortgage
• English Mortgage
• Equitable Mortgage
• Anomalous Mortgage

These are different types of mortgages, as classified under Indian law (specifically the Transfer of Property Act, 1882)

Q.2. What are the three main types of loans?

A. A loan is a sum of money that an individual or company borrows from a lender. It can be classified into 3 main categories, namely, secured, unsecured, and open-end and closed-end loans.

Q.3. How many types of mortgage deeds are there?

A. There are 2 common types of mortgage deeds: Simple mortgage and mortgage by deposit. The mortgage deed contains several key elements, including the parties, deed description, property details, recital, a covenant for repayment, mortgage clause, and possession.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.