What is a mortgage loan?
A mortgage loan is a secured form of loan wherein the borrower can pledge their property with a bank or an NBFC to secure a large sum of financing. The property that is to be mortgaged can be of any type of commercial or residential property. The banks provide long term loans and charge interest on the principal loan amount and since the property is used as collateral to secure the loan the banks are less hesitant to approve these mortgage loans.
What are the benefits of applying for a mortgage loan?
Mortgage loans are beneficial in comparison to other forms of loans such as personal loans, home loans etc. Here are some of the benefits of a mortgage loan:
Long Term Tenors:
A mortgage loan is usually long term due to the large sum of financing that is provided and since this form of loan is secured by collateral the banks usually provide up to 70% of the property’s market value as a mortgage loan.
High Value:
A mortgage loan provides a large sum of financing that can help tackle any expense you may have because the loan is against the property placed as collateral.
Interest Rates:
A mortgage loan is secured with a property as collateral thus making the interest rates on mortgage loan lower than other forms of loans such as a personal loan or home loan. The interest rate usually ranges from 10 to 12% depending on the property evaluation. Other factors are responsible for the low-interest rates for a mortgage loan such as your CIBIL score.
Funds Usage:
A mortgage loan does not have any usage restrictions when compared to other forms of loan such as a home loan. The funds that you receive from a home loan can only be used to purchase a residential or commercial property. This is not the same in the case of a mortgage loan as the funds you receive can be used for any expense you may have, such as medical expenses, home renovation, wedding expenses, higher education abroad, debt consolidation, or even business expenses.
Property Usage:
One of the most lucrative factors of a mortgage loan is that you can continue to enjoy the benefits of the property during the tenor of the loan and once the loan is repaid the lender will transfer the ownership of the property in the name of the borrower.
Monthly Instalments:
Due to the long term tenor of the loans, multiple flexible payment plans are offered to make it easier to afford a mortgage loan.
Approval:
A mortgage loan is secured making it easier to get approval from a lender and the documents required for a mortgage loan are very straightforward making it extremely hassle-free when applying for a mortgage loan.
Tax Benefits:
No tax benefits can be claimed on a mortgage loan, but you can claim benefits on the interest payable on the principal amount.
What types of interest rates are offered on a mortgage loan?
A mortgage loan comes in two forms such as:
Fixed Interest Rate:
A fixed interest rate remains the same during the entire tenor of a mortgage loan and you can opt for a fixed interest rate for a short-term loan. In the case of a long term loan, fixed interest rates are rarely offered.
Floating Interest Rate:
Floating interest rates depend on the fluctuation of the market rate and the interest rates are constantly changing during the tenor of the loan depending on the Marginal Cost Lending Rate (MCLR)
What are the Eligibility factors and documents required when applying for a mortgage loan?
There are two criteria for a mortgage loan for salaried and self-employed individuals:
For a salaried individual:
- The applicant must be a resident of India
- Must be between the age of 23-58 years old
- Applicant must be a salaried employee at an MNC or in the public or private sector with a stable income to repay the loan.
For a self-employed individual:
- The applicant must be a resident of India
- Must be between the age of 23-70 years old
- Self-employed individuals must have a business with a steady income to repay the debt
Here is the list of documents required when applying for a mortgage loan:
- Latest salary slips in the case of a salaried individuals
- Bank statements for the past six months
- KYC documents such as Pan Card, Aadhaar Card, Driving License, Passport etc.
- Address Proof
- Income Tax Returns for the past three years
- Financial statements in the case of self-employed individuals
- Title documents for the property to be mortgaged
