Mortgage loan

A loan which is backed by a security is a mortgage loan. It is the best way to avail a loan of high value. To buy expensive assets like a home or car, the loan which is taken is a mortgage loan. The asset for which one takes the loan remains mortgage to the bank unless it is repaid. Apart from that, even if you put any security which you own with the bank in order to raise money, such type of is also a mortgage loan. Whenever there is a requirement of a huge investment to start a business or do some expansion in an already existing business, such type of loan is highly useful. The rate of interest of such loans is generally low as there is a collateral provided. The tenure in such loans is long enough to make the repayment easy and affordable for the borrower.

The best part of mortgage loan is that an individual can avail a huge amount of loan and that too with a low rate of interest. The lending institutions provide financing from 50 to 80% of the property value. It is a highly recommended category of loan for people to own the assets they want or to invest money in their business.

Features of Mortgage Loan

  • Secured loan- Mortgage loan means that something has to be put as collateral to get the loan.
  • Low-interest rate-  Since it is a secured loan, the rate of interest is lower than unsecured ones.
  • Long tenures- Again, it is a secured loan, therefore the lending institutions take the risk of providing long repayment tenures.
  • Lower EMI- The equated monthly installment is lower owing to the low-interest rate and long tenures.
  • Multiple repayment modes- The modes of repayment are post-dated cheques, Electronic clearance service, and auto-debit. The applicant can choose any one of them to repay the loan.

Benefits of mortgage loan

  • The EMI is adjusted to be at least not more than half of the borrower’s salary. Accordingly, the tenure of the loan is extended.
  • The availability of the long repayment tenures gives confidence to the borrower to get a high amount loan.
  • One can easily fulfill one’s requirement for a huge amount of money through such type of loan.
  • Since there is a huge competition in mortgage loans, one can get a quite competitive loan interest rate. And if one goes for the bank in which one is having more transactions, then there is always a scope for negotiation.
  • The lender also takes the risk of huge amount here only because of the high-value security which the borrower put against the money. In case the borrower fails to pay back the loan, the lending institution can take a legal action and seize the property.

Two types of interest rate in mortgage loan

There are total two types of interest rate in the mortgage loan,

  1. Fixed rate- When the rate of interest is fixed throughout the loan repayment tenure.
  2. Adjustable rate- Such type of rate of interest is set according to the linked indexes. During the loan tenure, the rate of interest may increase or decrease according to the changes in the same.

The procedure of the mortgage loan

  1. Documentation- As soon as one decides which lending institution one is willing to take a loan from, the next step is the documentation. One has to submit all the necessary documents depending on the type of mortgage loan one is looking for.
  2. Verification- In the next step, those documents are verified to ensure that they are authentic and the details in those documents are also correct.
  3. Approval- After everything falls into the place, the credit team of the lending bank approves the loan and prepares an offer letter for the applicant.
  4. Acceptance of the offer- The offer letter mentions all the relevant details such as EMI, the rate of interest, the loan tenure, the mode of repayment and other terms and conditions.
  5. Disbursement- Once the borrower accepts all the terms and condition, the last step that takes place is disbursement. It means that the sanctioned loan amount is finally given to the borrower.

Eligibility for the mortgage loan

  1. For a mortgage loan in India, one has to be a citizen of India.
  2. The minimum and the maximum age to get a mortgage loan is 21 years and 60 years respectively. However, some lending institutions allow the minimum age of 18 years and a maximum of 65 years.
  3. The applicant must earn the minimum amount as specified by the bank or NBFC.
  4. Applicant must have a steady income.
  5. The property which is put as mortgage has to be dispute-free.

Documentation of mortgage loan

Employed Self-employed
Application form Duly signed application form along with 2 passport-size colored photographs. Duly signed application form along with 2 passport-size colored photographs.
Photo ID and age proof PAN card, Adhaar card, Driving license PAN card, Adhaar card, Driving license
Income proof Last 3 months’ salary slip, Form 16 or Income tax return Last 3 years income tax return with the computation of income.
Income track record Last 6 months’ bank statement Last 6 months’ bank statement

 

What is amortization in mortgage loans?

During the initial EMIs, the borrower pays more interest than the principal amount. It is because the outside amount is more which in turn leads to higher loan interest. As the borrower keeps paying the EMIs duly and timely, the principal reduces and therefore the EMI amount includes less interest amount and more principal amount. This is what we call amortization in the mortgage loan.

Things that lead to mortgage loan rejection and how to avoid them?

  1. Existing liabilities- When an applicant already has a loan which taking a significant portion of his/her income in the form of EMI, the bank rejects the loan application. Do not consider that providing a collateral can help one with that. The security is only for the situation when the borrower fails to make the payment. Rest it the repayment capacity of the borrower which plays a major role.
  2. Poor CIBIL- If for some reason you have a poor CIBIL score, then the rejection of your application is a normal thing. Therefore, try to improve your credit score before applying for the loan. Take short-term credits, consumer loans or credit card. Make timely repayment of the same to improve your CIBIL score.
  3. Bad property- Make sure the property to buy which you are applying for the loan or the property which you are mortgaging to raise is free from any kind of dispute.
  4. Proper KYC- The discrepancies in the KYC document can also lead to rejection of your loan application. Make sure to do the corrections before submitting your documents to the bank/NBFC.
  5. Reasonable application amount- The borrower mostly has the knowledge of the value of his/her property. If he/she applies for an amount which more than the lendable amount, the application is bound to get rejected. Therefore, always be reasonable before applying for a loan amount.

Important FAQs

Is it only the house property which can be mortgaged?

No, you can also mortgage your commercial property, gold jewelry, plot etc. It is very important that whatever you are keeping as collateral is valuable enough to meet your loan requirement.

Can we get the loan up to 100% of the value of the collateral?

No, we cannot. The maximum percentage up to which a lending institution can go is 90% and that too only in the case of home loans. The standard range is 50% to 85%.

How the home loan and the car loan are mortgage loans?

The mortgage loan is not just restricted to lending an amount against the collateral. One can also take loans to buy assets and the same asset stays mortgaged with the bank until the repayment of the loan. The home loan and car loan are such loans.

Can I get a mortgage loan if my CIBIL score is poor?

A CIBIL score below 500 will not be even considered for any type of loan, let alone be the mortgage loan. People may think that providing collateral will offer a sense of security of loan repayment to the banks. But one thing that we must understand is that recovering loan through selling/auctioning the property is the last resort. No bank or any other financial institution wants to sell the applicant’s property. It wants it to be recovered through the borrower’s income. Therefore, your CIBIL score should be good enough as it tells about your repayment behavior.

I am not working presently but I have an ancestral property in my name. So, can I get a mortgage loan against that?

No, your source of income only gives the assurance of loan repayment. Merely owning a property cannot get you a mortgage loan.

Can any earning individual apply for the mortgage loan?

Not just any individual can apply for a mortgage loan. First of all, one must fall in the range of eligible age. After that the applicant’s income must more than or equal to minimum income requirement guideline of the financial institution. It varies from bank-to-bank. Apart from that, the income of the applicant must be steady.

Is it important to compare among the different financial institutes?

Yes, it is. As the rate of interest, processing fee, other charges and eligibility criteria differs from institution-to-institution, therefore, you must know about all the options. Comparing will let you choose the best suitable option for you.

Is the prepayment allowed in mortgage loan?

The mortgage loans are the loan-term loans, that means the repayment tenure is long. Therefore, there is a lot of risk of default which the lender takes. Hence, it is allowed to do the loan prepayment. These days, many of the leading financial institutions have eliminated the prepayment charges from their system.