Mortgage Loan

Mortgage Loan in India

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What is a Mortgage Loan?

A Mortgage Loan is a type of loan that is secured with personal or commercial property. The borrower agrees with the financer or lender (usually a bank) wherein the borrower receives cash upfront then makes payments over a set period until he pays back the lender in full.

A mortgage is often referred to as home loan when it’s used for the purchase of a home. Usually, the amount of funding can be avail up to 60-80% of the registered value of the property and the repayment tenure for mortgage loans can be up to 15-20 years. The interest rates on mortgage loans range from 8.75% to 13.35%. This loan is available against freehold and fully constructed commercial and residential properties and can be available for both salaried and self-employed individuals. An applicant can either apply for the loan individually or jointly with a co-applicant. The borrower can make payments every month.

Freehold property is a property which gives full legal rights to the owners to live and use the property. Most property in India is freehold, which means that ownership is transferable. A freehold property owner has the right to sell, transfer and repair the property. The freehold properties give more right and responsibility to the owner.

This type of loan an opportunity for the borrower to generate additional income from an otherwise idle property. Under this, the borrower pledges collateral in the form of property against the loan amount. The borrower still maintains the right of ownership of the property and when he repays the total loan amount on or before the tenure of the loan, he gets back his property.

Types of Loan:

Mortgage loans are of two types:

  1. Term Loan: Term loan is given by a financial institution for a particular period. In this type of loan, the consumer has to pay within a particular time which is mutually agreed by both parties. Term loans offer against the security of the borrower’s immovable property.
  2. Overdraft Loan:  Overdraft loans also offers against the security of the borrower’s immovable property. In case of overdraft loan, the borrower has an option to withdraw money as per his need and save on interest cost. For instance: The bank has approved a total loan of Rs. 5 lakh for the borrower, of which he needs just Rs. 1 lakh, then the interest rate will be charged on only Rs. 1 lakh of the total loan amount.

In an overdraft loan, the total the loan is disbursed in installments depending on the borrower’s requirement. Interest is charged only on the loan amount taken by the borrower and not the total loan. The borrower has to open an account in case of an overdraft loan. The account is also called running account. The overdraft facility is available for one year and is to be reviewed annually.

Who can avail of a loan?

Mortgage loans can be availed by individuals, salaried employees, self-employed, proprietary firms, partnership firms, professionals and businessmen. Loans can be applied by individuals and by co-applicants. Owners of the current property, in respect of which the loan is being sought, will have to be co-applicants. However, co-applicants need not be co-owner.

Eligibility for Mortgage Loan

To get approved for a mortgage loan, you need to fulfill the eligibility criteria set by banks or financial institutions. While the criteria may vary from bank to bank, listed below are general factors that determine your eligibility:

  • Gross annual/monthly income
  • Minimum age required of 21 years
  • Valuation of your property
  • Income proof documentation
  • Existing liabilities
  • Number of dependents

Documentation Required:

The documentation required for the loan application varies based on your employment status i.e., self-employed or salaried.

If you’re a salaried individual, listed below are some documents you may be asked to submit:

  • Duly filled loan application form
  • Passport-size photographs
  • Identity proof (PAN card, Aadhar card, passport, driving license, voter ID card, etc.)
  • Address proof (Electricity bill, ration card, Aadhar card, driving license, rental agreement)
  • Latest salary slips
  • Form 16 issued by the employer
  • Latest bank statements
  • Processing fee cheque

If you’re a self-employed professional/individual, you may be required to submit the following documents:

  • Duly filled loan application form
  • Passport-size photograph
  • Identity proof (PAN card, Aadhar card, passport, driving license, voter ID card, etc.)
  • Business proof
  • Financial statements for the last 3 years
  • Latest income tax return certificates (last 3 years)
  • Profit and loss statement (P&L)
  • Latest bank statements
  • A cheque for processing fee

 Benefits of Mortgage Loan:

  • The borrower can take a mortgage loan for a longer duration
  • Pay off your repayment by using smaller monthly EMIs
  • Less rate of Interest
  • It is a secure loan, secure against the property
  • The borrower can get loans against under-construction property, fully constructed property, a freehold residential and for commercial properties
  • A mortgage loan can be sectioned even before you select your property
  • Both residential and commercial properties are accepted as collateral for a mortgage loan
  • Funds received from mortgage loans can be used for business as well as personal needs

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