Loans by mortgaging a piece of real estate are one of the most popular forms of accessing credit. They command a lot of appeals and can be quickly approved by the lender.
Quite assuredly, it’s the single secured loan preferred by the most number of people. Mortgage loans come armed with a number of features, offers, and benefits. Both banks and non-banking financial entities offer mortgages for loans. Collateral or security could be land or property owned by the borrower. Close to 70 percent of the collateral value is given as a loan.
What is a mortgage for a loan?
- It is a loan against property owned by loan aspirants. The property could be house, shop, or any non-agricultural land.
- Various lenders, including non-banking finance companies, give this loan.
- The lender charges interest on the principal, which can be calculated by using a mortgage loan calculator.
- Mortgage loans are repaid in monthly installments.
- Your house or property is the guarantee which stays with the lender until you pay the due amount back.
- The lender has a legal claim on the mortgaged property for the duration of the loan tenure.
- If a borrower defaults, the lender has the right to auction the mortgaged property.
Different types of mortgages for loans
Loan against property (LAP):
LAP is offered both on commercial and residential properties. It’s a secured loan where the property acts as the collateral. This type of loan can be approved very swiftly – as early as 72 hours. However, for a quick approval of loan against property, the aspirant must furnish all the documents including those related before the property to the lender. Property documents have to be deposited with the lender for the mortgage loan. Repayment is in EMI. A LAP usually has a 15-year tenure. You can use the mortgage loan calculator to work out loan details.
Lease rental discounting:
When somebody leases his house, shop, or office and a mortgage loan is taken against the leased property, it’s called lease rental discounting mortgage loan. In this case, the monthly rent that comes from hiring the house may become the EMI. You can use a mortgage loan calculator to work out the amount of loan. Loan tenure depends on lease tenure. The lease agreement is kept by the lender.
Second mortgage:
As the name suggests, it’s a second loan on a property already collateral for a previous loan. This happens when a borrower takes a second mortgage loan on the same property. It is also called a top-up loan. It gets approval based on the credit score of the borrower, and repayment history. He will have to pay two EMIs, which can be determined by using a mortgage loan calculator.
Commercial Purchase:
This kind of loan is available to businessmen or the businesses themselves. Typically, it’s given to buy business establishments such as shops, offices, malls. This loan is to be used for buying the intended and stated property. In this case, the property being bought becomes the mortgage. The lender keeps a copy of the property documents and has the right to auction off the mortgage in case of persistent default in repaying the loan.
Reverse Mortgage:
This kind of loan is for senior citizens who own a house and want a loan against it. Reverse mortgage loans (RML) may be paid in the form of monthly installments. In the event of the death of the owner, the legal inheritor of the property has the option to repay the loan or sell the property and repay the lender. This scheme helps senior citizens who are in need of liquid cash to borrow money using the property as collateral.
A home loan is the most common mortgage loan. The interest rates are very competitive. Loan tenures are favorable. And the borrower gets a tax rebate. He can use a home loan to carry out changes to the property. Home loans can also be used to buy land to build a house or buy a building still under construction. The only condition is that the loan has to be used for buying a house only.
To Wrap Up:
Taking a mortgage loan is not an easy process. But if you arrange for the right documents, ensure that you meet all the criteria, and be transparent with the lender, you can take it with ease. Don’t, however, forget to read the fine print and weigh the pros and cons of deciding on a particular lender. The applicant should carry the right documentation. The loan is approved only after documents are verified.
