A mortgage is a tool for debt which is protected with the help of a security deposit or collateral. These loans are very beneficial for personal or professional life. The other terms used for these loan types are “liens against property” or “claims on property”.

For individuals, at the personal level, the mortgage loans involve the owner of the land mortgaging the property and raising funds through it from the bank. Till the time the loan is repaid, the bank holds the claim of the house.

For business professionals, the loans are used to buy properties of real estate without having to pay the whole amount in one go.

How do Mortgage Loans Work?

These are the important aspects of the mortgage loans provided in India:

  1. The mortgage loan installments or EMIs (equated monthly installments) comprise the payment of the principal amount, mortgage interest as applicable, other charges of insurance, and taxes as applicable.
  2. The mortgage loan looks very lucrative as huge amounts of funds and capital can be raised through it. However, the borrower must be cautious while applying for the loan as the repayment capacity might not be in line.
  3. In case Applicants are looking for real-estate sellers who can pay good value for Applicants’ property, get the loan approval and establish a good credit score which will eventually help.
  4. The proper detail and schedule of property purchase should be clarified to the lender as per the amortization schedule.
  5. The foreclosure charges have been done away by the RBI. So, before seeking the loan, read the offer document carefully before availing the loan or signing any document.
  6. The overall costing of the project also includes the 15% cost bearing by the borrower, the payment being initial.

Different Types of Mortgage Loans in India

Below are the various types of mortgage loans and following are the explanations for them all:

  1. Simple Mortgage
  2. Usufructuary Mortgage
  3. Mortgage by Deposit of Title Deeds
  4. Mortgage by Conditional Sale
  5. Anomalous Mortgage
  6. Reverse Mortgage

 

  1. Simple Mortgage: In this kind of mortgage loan, the mortgagee does not acquire the ownership of the property. However, he has the authority of mortgaging the land in case the mortgagor (the loan availer) fails to pay back the loan.
  2. English Mortgage: In this type of mortgage loan, the loan is to be repaid by a certain date mutually agreed upon by the lender and the loan seeker. The borrower should pay back the loan by a certain date failing which; the mortgagee holds the right to sell away the property.
  3. Usufructuary Mortgage: In this loan type, the mortgagor passes on the possession of property or binds oneself to pass the possession to the mortgagee. In case the property is profitable, the gain goes to the mortgagee until the loan is paid off.
  4. Mortgage by Deposit of Title Deeds: In this kind of loan type, the property is delivered to an agent or a mediator for safeguarding. The stamp duty for this type of loan is not payable.
  5. Mortgage by Conditional Sale: In this case, the mortgagor purportedly sells the collateral property on stake in case the mortgage amount stays unpaid by the mutually decided date, or the sale of mortgage does not hold any value, or the mortgagee re-assigns the property to the mortgagor.
  6. Anomalous Mortgage: The loan type is a mix and match of mortgage loans of various types.
  7. Reverse Mortgage: As the name suggest, the proceedings of the loan happen the opposite or in the reverse mode. In normal loans, the borrower pays monthly installments. However, in a loan through reverse mortgage, the lender pays monthly amounts of mortgage money to the borrower or mortgagor. In this way, the money is converted into equity.

Eligibility to Avail a Mortgage Loan in India

Following features define the eligibility of the applicant for mortgage loans:

  1. The total annual income of the applicant from all sources.
  2. Minimum age criteria, which ranges between 18-21 years.
  3. The current loan if any and the status of paid EMIs and pending EMIs for the same.
  4. The value of the property with respect to the set standards which includes close proximity to market, rail and bus stands, etc.
  5. Job experience and relationship with employer.
  6. Number of members of the family as dependents.
  7. Job profile: Salaried or Self-employed (professional and non-professional)

Documents Required for Mortgage Loans in India

For Salaried Individuals

  • Application form with photograph of all the applicants with cross signatures.
  • Proof of Identity.
  • Proof of residence.
  • Latest salary slips.
  • Form 16 or salary certificate showing the total salary and tax deducted.
  • Bank statement of the last 6 months validating regular income.
  • A cheque on account of processing fees in favour of lender bank.

For Self-Employed Professionals

  • Application form with photograph of all the applicants with cross signatures.
  • Proof of Identity.
  • Proof of residence.
  • Proof of office address location.
  • Proof of educational qualification.
  • Proof of the existence of self-service or occupation.
  • Income tax returns copy (ITR copy) of the latest three years for individual and business.
  • Profit or Loss computation of the latest three years validated by an authorized CA.
  • Bank statement of the last 6 months validating regular income for individual and business.
  • A cheque on account of processing fees in favour of lender bank.

For Self-Employed Non-Professionals

  • Application form with photograph of all the applicants with cross signatures
  • Proof of Identity.
  • Proof of residence.
  • Proof of office address location.
  • Proof of business profile (position in the company).
  • Income tax returns copy (ITR copy) of the latest three years for individual and business.
  • Profit or Loss computation of the latest three years validated by an authorized CA.
  • Bank statement of the last 6 months validating regular income for individual and business.
  • A cheque on account of processing fees in favour of lender.

Types of Interest Rates on Mortgage Loan

Now, let’s talk about the type of interests that are applicable on the Mortgage loan. There are generally three different types of interest types that are widely opted; ARM (Adjustable rate mortgage), FRM (Fixed rate mortgage) and Interest-only mortgage. Adjustable rate mortgage is also known as flexible rate mortgage and as the name depicts it can fluctuate. The rate of interest is wholly dependent on the present economic status. It can fluctuate as per the current economic scenario and prime lending rate. Prime rate is generally the interest charged by the commercial banks. Thus, if the prime interest increases, the interests charged on the mortgage loan will also increase and vice-versa.

Talking about the another type of interest, FRM which is also known as Traditional Mortgage Loan stands as per its name, which simply means that the interest on the mortgage loan will not fluctuate and it will stay the same for the whole fixed period of time.
Now, the third type of interest is Interest-only mortgage. In this type, Applicants initially need to pay the interest only followed by the principal amount. The benefit of this type is that applicants get the constant interest repayment over the tenure.

Having said that, different banks charge different rates of interests and are usually lower than the interest rate for personal loans. Following are the few banks and their interest rates as per the types for choosing the best suitable.

Advantages of Mortgage Loan

  1. Mortgage Loan can be taken for any kind of property, be it a property under construction or a commercial property. Applicants can also choose suitable type of loan before even identifying the place against which the loan has to be taken.
  2. Applicants can easily opt for a longer term of loan or long tenure and smaller EMIs. Also, they can opt for big amounts easily as per the requirement.
  3. Interest rate on mortgage loans is lower than other kind of loans like personal loan.
  4. By opting for mortgage loan, Applicants get a secured loan against the property and on failing to pay the loan; the banks possess the property against which Applicants take a loan.
  5. Mortgage loans help Applicants to buy house of their dreams and they can be the owner of the same after paying the amount, whose tenure is solely based on the amount and Applicant’s decision.
  6. Banks generally provide their agents to Applicant’s home and Applicants can apply the loan online.
  7. Buying a house is not the only purpose of getting the mortgage loan. Applicants can use the funds from the loan for the requirements. For example, Applicants can use those funds for growing business or serving the other crucial needs.

Ideal Banks/NBFCs to Look for Mortgage Loans

Considering all the fact mentioned above, it is true that choosing the best suitable bank for the loan against the property can be difficult. Different banks charge different rates of interests however, are usually lower than the interest rate for personal loans. Thus, it is really important to choose the bank wisely by considering all the pieces of information. Also, it is important to compare different banks and their rate of interest along with the different provisions. In the end, applicant should be satisfied with the choice and afterward processes of the bank.

These days, many banks try to provide the hassle free services to the customers and provide sound atmosphere for providing the respective loan.

Following are the few banks which are leading when it comes to getting a loan against mortgage.

  State Bank of India

SBI is leading in the list due to its reviews and suitability. Its market share being 25.50% says enough. Being a government bank, it might take a little while to get the things done, however, once the things are done or say, the loan is approved, everything will be smooth and worth the pain.
The interest rate is 8.60% for women and 8.65% for others. Also, the processing and pre payment charges are Nil till 31.03.2017

     HDFC Bank

Following the leading SBI is HDFC. With the market share percentage of 24.13, HDFC is another bank suitable for mortgage loan. With the processing fee of 0.5% or ₹ 10,000+ service tax, HDFC comes with the rate of interest of 8.65% to 8.75%. Also, there are no pre payment charges.

   LIC

Ranking third in the race is LIC Housing Finance. Applicants can fix the rate of interest for 5 years, making it a decent option when it comes to mortgage loan. Also, if applicants have any insurance policy done with LIC, it can reduce the interest rates by at leat 0.25%. The processing fee for loan up to ₹ 5 Million is ₹ 10,000 + service tax and for the loan of ₹ 5 Million or above, it is ₹ 15,000+ service tax.

     ICICI Bank

With the market share percentage of 13.10%, ICICI bank comes with less hassles while applying the loan. The processing fee is 0.50% – 1.00% or ₹ 1500 (₹ 2000 for few cities like Mumbai, Delhi and Bangalore) + service tax + surcharge.

The rate of interest is 8.65% – 8.85%.

AXIS Bank

Axis Bank has set the interest rate of 8.85% – 8.90% and its market share percentage is 4.22%. Having said that, Axis bank has got really good reviews and the process is not hectic. It has no pre payment charges and the processing fee is up to 1% of the amount subject to minimum of ₹ 10,000.

There are a few more options as well which can be suitable for applicants as per the requirement like, PNB Housing Finance Home Loan, Citibank Home Loan and more.

The Overall Process 
Applying for the mortgage loan can seem like a difficult task, but if followed the process in correct way, it can be really easy and effective at the same time. It is really important to know about all the pros and cons of a specific bank before opting for the loan.

As the first step while opting for the mortgage loan, Applicants need to approach the suitable bank and start the required documentation. Afterwards, verification of the submitted documents takes place and once the verification is done, applicant’s sought loan is approved. It might have some intermediate steps involved like appraisal of credit by applicant’s bank, collection of the documents against the property by the bank, legal verification and etc.