A mortgage loan is the most common type of loan in India and is availed by all classes of users, whether it is retail or business. They are popular among users because one can get a sizable amount of loan at relatively lower interest rates, with longer and more flexible repayment tenors. Let’s discuss the type of mortgage loan available in India.

What is a Mortgage?

A mortgage refers to the act of offering a self owned fixed asset as a guarantee or collateral to the lender against the loan availed. For example, pledging your own house or commercial property as collateral to avail a loan against property. Similarly, borrowers taking a loan to purchase a home or commercial property will need to pledge the purchased property as a collateral for the loan.

A mortgage-based loan is the most secure type of loan and lenders offer a lower interest rate on such loans as the risk of loss is much lower as compared to an unsecured loan.

Another fact of mortgage-based loans is that they can usually be availed only by pledging unmovable or immovable assets, like land, house property, commercial property, etc.

Six Different Types of Mortgages in India

1. Loan against Property (LAP)

An LAP is usually offered for residential and commercial properties. If you need funds for personal or professional needs, a Loan against Property (LAP) might be your solution. The lending institution usually holds the original property documents until the loan is fully repaid. Repayment is typically done in EMIs, with loan tenures of up to 15 years. To make things easier for borrowers, banks and NBFCs offer an option on their website to calculate loans against property EMI.

2. Commercial Purchase

Businessmen and entrepreneurs often opt for commercial purchase loans to acquire properties such as shops, office spaces, and commercial complexes. This particular loan is ideal for such purchases, as banks and NBFCs offer competitive interest rates. The loan terms, interest rates, and eligibility criteria differ from residential property loans due to the varying nature and risks associated with commercial ventures.

3. Lease Rental Discounting

Leasing out residential or commercial property is a common practice. In Lease Rental Discounting, the monthly rent is converted into an EMI, and the loan amount is determined based on the lease agreement and the duration of the lease. This type of loan benefits property owners who want immediate access to funds rather than waiting for rental incomes. Interest rates are based on the rental yield and the borrower's creditworthiness.

4. Second Mortgage Loan

If you have already taken a loan to purchase a property, Banks and NBFCs offer Second Mortgage Loans for additional personal needs. This is commonly called a top-up loan on your existing home loan. The lender will assess your credit score and loan repayment history to determine the additional loan amount. You will need to start paying the EMI of both loans - the first mortgage home loan and the second mortgage loan. The borrower's eligibility depends on the property's current market value, outstanding loan amount, and interest rates that might be slightly higher than the primary mortgage.

5. Reverse Mortgage

If you or a loved one is a senior citizen without a steady monthly income but owns real estate, a reverse mortgage may be a useful option. This special loan works the opposite of traditional mortgages, with the property being used as collateral for a steady monthly income from the lender. However, upon the borrower's death, the property will be sold to repay the loan. Any remaining funds will be given to the legal heirs of the deceased. You can seek the advice of a financial advisor to see if a reverse mortgage is a good fit for you or your loved one.

6. Home Loan

If you're looking to invest in your home in India, home loans can be a great option due to their competitive interest rates, comfortable durations, and tax benefits. You can use them to refurbish, renovate, or rebuild your property or to purchase land or under-construction properties. Do remember that funds borrowed in this case can be used solely for the house and cannot be used for any other personal or business needs.

Types of Mortgage Loans Based on Requirements of Borrowers

There are many different kinds of mortgage loans available in India. They are:

• Simple Mortgage
• Usufructuary Mortgage
• English Mortgage
• Mortgage by Conditional Sale
• Mortgage by Title Deed Deposit
• Anomalous Mortgage

1. Simple Mortgage Loan:

It is the most common type of mortgage in India, where both the lender and the borrower enter into an agreement that in case of non-repayment, the lender has the right to sell the property to recover dues. However, the possession of the property remains with the borrower.

2. Usufructuary Mortgage:

In this type of mortgage, the possession of the asset is transferred to the lender, who enjoys the rent or profit from it, without creating any additional liability on the borrower.

3. English Mortgage:

In this case, the borrower transfers the property to the lender upon availing of the loan. Upon repayment of the loan in full, the lender transfers the property back to the borrower. The sale transaction is absolute from the beginning.

4. Mortgage by Conditional Sale:

It is similar to an English mortgage, but with a condition. The lender can only sell the property when the borrower defaults. The sale transaction is not final initially and is dependent on future events.

5. Mortgage of Title Deeds Deposit:

This form of mortgage is more common in a housing loan, where the borrower deposits the title deeds of the property with the lender to avail of the loan. The memorandum of deposit of title deeds is signed, where the lender is made a party to the transaction. This gives the lender the power to repossess and sell the property to recover the dues in case of default.

6. Anomalous Mortgage:

A type of mortgage, which does not have any definition or falls under any types of mortgage in India discussed above.

Mortgage Loan by Grihashakti

We offer mortgage loans under multiple segments including home loans, commercial property loans, and loans against property (residential and commercial property) to eligible applicants.

Under the home loan segment, home construction loans, home extension loans, home improvement loans, and home purchase loans are offered. The memorandum of deposit of title deeds (MOD) mortgage type is used while advancing home loans.

Under commercial property loans, commercial property construction loans and commercial property purchase loans are offered to commercial enterprises.

And, loans against property or LAP loans are offered on both residential and commercial enterprises.

The mortgage loan offered under different segments comes with rapid approval and quick disbursal feature, flexible tenure, and affordable interest rates.

Types of Mortgage Loans Based on Interest Rates

Fixed-Rate Mortgages

These loans come with a consistent interest rate throughout the loan term, providing stability and predictability for monthly payments. They are ideal for long-term planning. However, initial interest rates might be higher than adjustable-rate options, and refinancing is required to benefit from lower rates

Adjustable-Rate Mortgages

These loans feature a variable interest rate that adjusts periodically. They offer lower initial rates but can fluctuate with market conditions. Borrowers should carefully consider the potential for rate hikes and their financial stability before opting for an ARM.

Variable-Rate Mortgages

Also known as floating-rate mortgages, these loans have rates that can change regularly. Market fluctuations directly influence them and can lead to potential savings or increased costs for borrowers. These loans often offer flexibility but have higher uncertainty as borrowers might experience sudden rate changes. This can impact their monthly payments unpredictably.

Things to Note Before Applying for a Mortgage Loan

Availability of a mortgage loan is the biggest financial commitment one makes and is more than just qualifying for the loan.

Mortgage loans come with long repayment tenure, which makes them affordable and attractive for borrowers. The following points you should note while applying for a mortgage loan:

• Your current financial situation
• Your future financial position
• Repayment capacity
• Interest rates
• Mortgage payments
• Mortgage size
• The extent of increase or decrease in the value of your home or property decrease in the future
• And, your personal tolerance level for debt and risks

How to Apply for a Mortgage loan?

Before you apply, assessing your eligibility and preparing the required documents beforehand would be helpful. Here is a guideline you can follow to apply for a mortgage loan:

Step 1: Research and Select a Lender:

You can start your research by looking up reliable lenders in India. Please consider exploring available home loan options by visiting their official websites.

Step 2: Property Details:

To help the lender assess the loan amount and terms, you can provide essential details about the property, such as its location, type, and address. This information will be crucial in determining the appropriate financing options for you.

Step 3: Personal Information:

Add your personal information, including your name, age, marital status, and, if applicable, the co-applicant's details, along with their PAN (Permanent Account Number).

Step 4: Eligibility Check:

The lender performs a thorough eligibility check to evaluate your financial health and creditworthiness. This helps the lender determine if your mortgage loan application is approved and the mortgage loan terms.

Bottom Line

Despite being an easy source of finance, you should look at all the aspects before applying for a mortgage loan, like a home loan. Because in case of non-payment of dues, you will not only lose your home property but also your credit score will be impacted negatively.

Use calculators and tools like home loan eligibility calculator, loan against property eligibility calculator, home loan EMI calculator, and APR calculator to know your eligibility and affordability for mortgage loans. It will help you to plan accordingly and reduce the risks involved.