Types of Mortgage Loans: Which One is Right for You?

A mortgage loan or loan against property is a secured loan where borrowers need to pledge their properties as collateral. Owing to their lower interest rates, easy approval procedures, etc., borrowers with urgent financial requirements often opt for mortgage loans.

However, borrowers planning to avail of this loan should have proper knowledge about the types of mortgage loans beforehand. This will help them select the right loan type as per their financial requirement and repaying capability. 

What are the different types of mortgage loans?

Borrowers can apply for any of these 6 types of mortgage loans based on their requirements:

  1. Fixed-rate mortgage loans

In fixed-rate loans, the mortgage loan interest rate remains the same throughout the loan term. Thus, a borrower needs to pay the same EMI amount till the final repayment date. A fixed-rate mortgage loan is generally sanctioned for a tenor of 15 to 30 years. Borrowers who prefer paying a fixed monthly repayment amount can apply for this loan. It will help them budget their monthly housing finances seamlessly. 

  1. Commercial mortgage

Business owners or entrepreneurs can apply for this loan to buy commercial properties like office space, commercial complexes, shops, etc. Financial institutions lend such loans at competitive interest rates. Borrowers applying for this loan must ensure that the loan amount is strictly used in business ventures. 

  1. Simple mortgage

In simple mortgage loans, the interest rate is calculated daily. Generally, the property loan interest rate is calculated monthly, but in this case, the lender charges a daily interest on the borrower’s loan amount. It is calculated by dividing the interest rate by 365 and then by the outstanding loan amount. 

  1. Usufructuary mortgage loan

In this type of mortgage loan, the entire collateralized property is handed over to the lender. The lender utilizes the borrower’s property for a certain period to achieve financial gains. The borrower can get back his/her property after the decided tenor upon repaying the mortgage amount. 

  1. English mortgage 

In this mortgage type, the borrower agrees to repay the loan amount within a specific time. However, if he/she fails to repay the loan within the decided time, the property is transferred to the lender. The borrower can get back his/her property only after repaying the entire loan amount along with the levied interest.

  1. Anomalous mortgage

This is an agreement between the lender and borrower based on both party’s terms and conditions. However, this agreement is so unique that it does not match the general mortgage loan features. As this mortgage type is different from all other loans, it is termed anomalous.  

What are the things to consider before borrowing a mortgage loan?

Individuals with substantial financial requirements can opt for a mortgage loan. However, there are certain factors to consider before borrowing a loan against property. Some of them are as follows:

  • Borrower’s eligibility criteria

After knowing the types of loans, borrowers must check out the mortgage loan eligibility criteria to apply for the same. Though the criteria may differ from one lender to the other, the basic requirements include the following:

  • Both salaried and self-employed individuals are eligible for the loan.
  • Borrowers should be Indian residents between 28 to 58 years of age (salaried individuals) or 25 to 70 years (self-employed).
  • Assessing property value

The value of the property plays a crucial role in determining the mortgage loan amount. Properties located in areas with good transport facilities and communication generally attract a higher value. Thus, such properties get easy approvals against a higher loan amount. However, borrowers should calculate their property’s area accurately for the right evaluation. Using a land area calculator can help one assess the actual area in specific units.

  • Comparing the interest rates of multiple lenders

Loan interest rate plays an essential role in determining the borrower’s eligibility to repay it on time. However, the mortgage loan interest rate may vary from one lender to the other. Thus, borrowers should compare the rates of different financial institutions before borrowing. A higher interest rate can impose a heavy burden on the borrower, affecting the timely loan repayment schedule.

  • Repayment tenor

Another crucial factor to consider while applying for a loan against property is the loan tenure. Borrowers can avail of a longer tenor of a maximum of 20 years depending on the chosen lending institution. Though a longer tenor minimizes the EMI burden, it increases the overall repayment amount. This is because lenders impose a higher interest rate for long tenors. Thus, individuals need to consider affordability while choosing the repayment tenor.

How to apply for a mortgage loan or loan against property?

Borrowers can follow these easy steps to apply for a mortgage loan:

Step 1: Visit the selected lender’s official website and download the loan against property application form.

Step 2: Click on the ‘Loan Type’ and select the type of mortgage loan.

Step 3: Select ‘Employment Type’, whether self-employed or salaried.

Step 4: Fill out the applicant’s name, birth date, contact details, and other information like PAN, PIN, monthly salary or annual turnover, etc.

Step 5: Submit the form after filling out all the mandatory fields and property details accurately.

The financial institution will get in touch with the borrower within 24 hours for documentation and other formalities. 

Several lending institutions provide pre-approved loan offers to existing borrowers depending on their credibility. These offers are usually applicable on loans against property, home loans, etc. Interested individuals can enter their name and other details on the lender’s website to check their eligibility for pre-approved offers.

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