Everything You Need to Know About a Mortgage Loan

According to a recent report published by TransUnion CIBIL, loan against property balances in India witnessed a YoY growth of 11.6% as of 31st December 2019. Furthermore, as per the report, mortgage loan balances stood at Rs.4,591 billion in the same period.

Such growth is chiefly attributed to the high credit amount that individuals can avail to mitigate a host of different financial obligations. Moreover, the ease of availability and multiple conveniences offered by notable lenders have also furthered the prominence of loans against property in India. However, it is paramount to know what is a mortgage before considering availing it.

What is a mortgage loan?

It is a secured credit facility wherein borrowers need to collateralize their property – residential or commercial – to avail credit from a lender. The quantum for a mortgage loan is determined after appraising the residual value of a residential property. Furthermore, a loan against property enables borrowers to meet numerous kinds of expenditures, more so because of the substantial amount of such loans.

What are the documents required to avail of a mortgage loan?

The list of documents needed to apply for these loans for both salaried and self-employed individuals is discussed below:

• OVDs for KYC – Aadhaar card, voter ID card, passport, etc.
• PAN
• Ownership documents and other pertinent papers of the property to be mortgaged.
• Bank account statements.

Other than these documents, salaried individuals need to produce the latest salary slips and income tax returns. Self-employed applicants have to submit proof of business existence documents.

Nevertheless, individuals must note that these documents are merely indicative, and lenders might ask for additional papers.

What are the features of a mortgage loan?

The features of a mortgage loan are enumerated below:

1. Loan Amount

Typically, prominent lenders provide a loan amount equivalent to 60% – 75% of the collateralized property’s value. The determination of such a loan to value (LTV) ratio for what is a mortgage loan is subject to an applicant’s eligibility and certain parameters. These criteria and parameters include an applicant’s income, his/her age, and area of the property to be mortgaged.

Nevertheless, borrowers can utilize the loan amount to meet multiple expenditures like a child’s education, marriage, etc. Furthermore, individuals can also consolidate their multiple debts using a loan against property. Individuals can manage their finances better through debt consolidation.

2. Affordable Interest Rates

One of the most significant advantages of a mortgage loan is the low-interest rates it invites. Since a loan against property carries less risk for a borrower, the interest rates on it are lower compared to unsecured credit facilities. This feature, in turn, mitigates the repayment burden of borrowers considerably.

3. Long Repayment Tenor

The repayment tenor for a LAP loan can go up to 20 years for salaried individuals and 18 years for self-employed individuals. Since EMIs are inversely related to tenor, individuals opting for a longer tenor can repay their loans in more affordable installments. However, tenor increases the cost of a loan.

Therefore, individuals might consider weighing their financial footing against EMIs across different periods of repayment. That would simplify their repayment and ease their financial burden.

4. Simple Availing Process

A loan against property is simple and quick to avail with straightforward eligibility criteria and nominal documentation process.

5. Facilitates Balance Transfers

Individuals can also choose to transfer the balance from their existing high-interest loan to a mortgage loan that invites low-interest rates. Thereby, borrowers can ease their repayment burden conveniently and with minimum hassle.

6. Low to Zero Prepayment Charges

Lastly, reputed lenders do not levy any charge to prepay or foreclose a mortgage loan that carries floating interest rates. Therefore, individuals coming into windfall gains or improved financial conditions can cut their tenor short and, in turn, reduce their repayment burden.

Regardless, when understanding what is a mortgage loan, individuals should know that they can avail these against their self-occupied or rented residential properties, as well as commercial and industrial properties. However, residential properties typically fetch the lowest interest rates.