
Mortgage Loan: Meaning, Types, Process to Apply & Eligibility
Purchasing a property is a significant investment, but not everyone has the necessary funds readily available. That's where a mortgage loan comes in, providing the financial support needed to make such a major purchase.
With different types of mortgage loans available, each tailored to different financial situations, navigating the mortgage landscape can feel complex. Understanding the intricacies of these loans can help you make informed decisions and achieve your homeownership dreams.
So, if you're seeking plots in Chennai, Tambaram or any other prominent places in India, and are considering a mortgage loan to finance your purchase, then here is a comprehensive guide that delves into mortgage loan meaning, its types, application process, eligibility, and much more.
What is a Mortgage Loan?
A mortgage loan is defined as a type of loan where the borrower pledges their property as collateral to secure funds from a lender. When you opt for a mortgage loan, the ownership of your property is transferred to the lender. Once the loan is repaid, the lender transfers the property rights back to you.
By leveraging your property, you as a borrower can access the necessary funds to make significant investments, such as buying property, refurbishing your home, expanding your business, or debt consolidation, without having to pay the full amount upfront.
Types of Mortgage Loan
There are different types of mortgage loans available, each designed to cater to different financial needs and circumstances. These types include:
1.Home Loan
Home loans are secured loans offered by Banks and NBFCs to those looking to purchase a home, be it an apartment, villa, or anything else. You can also use this loan to refurbish or renovate your home.
2.Loan Against Commercial Property
This type of mortgage loan allows businesses to leverage their commercial real estate as collateral to obtain sizeable funds. The sanctioned funds can be used to purchase commercial properties, such as office spaces or retail outlets.
3.Loan Against Residential Property
Similar to commercial property loans, these loans allow homeowners to borrow funds against their residential properties. They can be used for various purposes, including home renovation, business expansion, or debt consolidation.
4.Lease Rental Discounting
Lease rental discounting (LRD) is a loan type where the rental property is used as collateral to secure a loan. The rent amount collected is the EMI in this type of loan, making it easier for you to repay the loans. In the LRD loan type, the loan amount and tenure are decided by the lender based on the lease.
Features and Benefits of Mortgage Loan
Here are some features and benefits of a mortgage loan:
1.Reasonable Interest Rate: Due to the secured nature of these loans, the interest rates offered are generally lower compared to unsecured loans.
2.Loan Repayment Tenure: These loans typically offer a long repayment period of up to 17 years, making monthly payments more manageable.
3. Easy Balance Transfer: With these loans, you can easily transfer your Loan Against Property balance to another lender for better interest rates and tenure.
4.High-Value Loan Amount: In these loans, borrowers can access substantial loan amounts based on the property's current market value. Typically, the loan amount can range from 40% to 75% of the property's loan-to-value (LTV) ratio.
Steps to Apply for a Mortgage Loan
The mortgage loan process involves some simple steps. These steps include:
Step 1: Fill Out the Application Form
Visit your preferred lender’s website or their nearest branch to obtain a mortgage loan application form. Fill it out with the required personal and financial details.
Step 2: Await Loan Processing
After the application form sublimation, the lender will evaluate your eligibility for the loan. They may offer you loan terms based on your eligibility.
Step 3: Document Submission
Once the initial mortgage loan process is complete, you will have to submit some documents. These documents include:
- Recent passport-sized photographs
- Identity proof, such as PAN card, voter ID card, Aadhaar card, etc.
- Proof of residential address, such as an Aadhaar card, driving license, rent agreement, utility bills, etc.
- Latest salary slips
- IT returns
- Bank account statements
- Property documents, such as title deed, registered sales deed, conveyance deed, approved building plan, property tax receipt, etc.
Step 4: Loan Verification
Once your documents are submitted, the lender will start the verification process which could include a valuation of the property to ensure it meets their criteria for the loan amount requested. Based on these evaluations your loan will get approval.
Step 5: Loan Disbursement
After completing any additional formalities, the lender will hand over a credit sanction letter to the borrower, approving their loan.
Mortgage Loan Eligibility Criteria
The eligibility for mortgage loans is different for different financial institutions. Some of the most common criteria for applicants are:
- The applicant must be an Indian citizen, with a minimum and maximum age of 25 and 75 years.
- Salaried applicants must be employed in a public or private limited company or an MNC, often requiring a minimum work experience of 2-3 years.
- Applicants who are self-employed or are business owners must have been in the existing business for more than 3 years.
- A CIBIL score of 750 or above is usually required
Things to Keep in Mind When Applying for a Mortgage Loan
Now that you have understood what a mortgage loan means, here are some things to keep in mind while applying for the loan:
- Always borrow the amount you can afford to repay.
- Compare interest rates from different lenders and choose the lowest interest rate to keep your costs down.
- Be prepared for additional expenses such as appraisal fees, legal fees, and other closing costs.
- Remember that the loan amount is determined by the metric value of the property you want to put on the mortgage.
- Decide on a loan term that aligns with your long-term financial goals.
- Consider taking a loan from a lender with whom you have an existing relationship. This could help you get quick approval and lower rates.
In conclusion, a mortgage loan offers homeowners a practical solution for leveraging the value of their property to achieve various financial goals. Hence, whether looking to buy land for sale in Minjur or other areas of your choice, understanding the mortgage loan meaning, its types, eligibility criteria, and the application process is crucial to make informed decisions.
FAQ
Here's how it generally works
- ● The lender provides funds to buy land, with the land serving as collateral until the loan is repaid.
- ● The loan is repaid in monthly installments over a fixed period, including both principal and interest.
- ● Failure to repay can lead to foreclosure, where the lender sells the property to recover the loan amount.
Current Trend Break Down:
- ● 30-year fixed-rate mortgages: The average is around 7.00%. As of January 29, 2025, the rate was 7.03%. Another source states that the average in January 2025 was 6.91%, increasing from 6.72% in December.
- ● 15-year fixed-rate mortgages: Averaged 6.16%
- ● Jumbo 30-year fixed-rate mortgages: Averaged 6.86%
Future predictions:
- ● Industry forecasts suggest that mortgage rates will likely remain above 6% throughout 2025
- ● One real estate website predicts rates will average 6.3% in 2025, decreasing slightly to 6.2% by the end of the year
- 1. Assess Eligibility and Financial Capability: Start by evaluating your income, expenses, and credit score to ensure you meet the lender's criteria and can afford the installments
- 2. Application: Complete the loan application form, providing accurate details and required documents like income proof, property papers, and ID proof. You may need to provide employment details, income details, and information about your assets.
- 3. Credit Assessment: The bank evaluates your eligibility based on your income, credit score, and repayment capacity. A representative might contact you to validate the provided information.
- 4. Loan Approval and Property Valuation: The lender reviews your application, assesses the property's value, and verifies your eligibility.… and a few more.