A Comprehensive Guide to Mortgage Loans

A mortgage loan is a loan backed by security or collateral. The borrower who avails of these loans essentially pledges a property they own security.

Loans have become an integral part of our lives. In fact, most people these days are servicing at least one or two different loans. Loans allow us to afford the lifestyle we want without feeling financially burdened. One of the loan types that is gaining increasing popularity in India is the mortgage loan.

What is a Mortgage Loan? 

A mortgage loan is a loan backed by security or collateral. The borrower who avails of these loans essentially pledges a property they own security. If the loan borrower is unable to secure or repay their loan EMIs for a long period, the loan borrower can sell the pledged collateral for recovery of losses. 

Across the world, the term mortgage loan covers all loans that are backed by collateral, including home loans and loans against property. However, in India, the term property loan is often used synonymously with loans against property. 

What is a Mortgage Loan or a Loan Against Property? 

Property owners can leverage the equity locked in their property and avail of a loan against it. Such loans are known as mortgage loans or loans against property. 

However, the same lien also gives the lender the legal right to sell the pledged collateral if the loan borrower defaults on loan repayment for at least six months or more or clears that they won’t be able to repay the loan. Let us now look at some of the benefits and features of these loans. 

Mortgage Loans: Features and Benefits 

1. High Loan Sanction

The LTV ratio ranges from 60% to 70%. This is a high loan amount and therefore, loan borrowers can get access to substantial funds easily. 

In fact, with the right collateral and credit profile, loan borrowers can avail of a loan amount high enough to pay a child’s college tuition fee, cover wedding expenses, buy another property or even start a new business. 

2. Long and Flexible Repayment Tenor

Even though mortgage loans are backed by collateral, in case of a loan default, selling the pledged collateral is not an easy task. 

Therefore, to minimize the chances of a loan default, lenders give borrowers the option to choose their repayment tenor. Further, they also allow borrowers to take up to 18 to 20 years to repay their mortgage loan so that the loan does not begin to feel like a financial liability. 

3. No End-Use Restrictions

Other than mortgage loans or loans against property, there are no other loans in India that give loan borrowers access to such substantial funds without implementing any end-use restrictions on the loan money. This is a big benefit that works in the favour of mortgage loans.

4. Low Mortgage Loan Interest Rates

The biggest benefit of loans against property is that since these loans are backed by collateral, the risk for the lenders is minimal. Therefore, it is not surprising that loans against property interest rates tend to be low. In fact, lenders charge only a slightly higher rate of interest on these loans as compared to home loans, which are the cheapest of all loans. 

Mortgage Loans: How to Apply 

If you are planning to apply for a mortgage loan, here is what the process involves. 

1. Do your research and find out a lender who you trust and find reliable. Next, go to their website and apply for a mortgage loan using the form published on their website. Alternatively, you can also go to their office and apply for a loan in person. Submit a properly filled mortgage loan application form along with all the required documents.

2. Once the lender you have applied to receives your application and the document they need for processing the loan, they will start the process of document and property verification. During this step of the process, your lender will hire legal and technical experts to verify all the documents and the information provided in them along with the property that you plan to pledge as collateral.

3. If you successfully pass through this step of the process, your lender will discuss the terms and conditions of your loan and initiate a round of negotiations either verbally or through the mortgage loan sanction letter. They will conclude this step by sanctioning the home loan offer letter or the final loan agreement.

4. Sign the final loan agreement and wait for your lender to disburse the loan money into your account.