According to the Credit Market Indicator [CMI] report by TransUnion CIBIL, there had been an exponential surge in credit demand during the second quarter of this year.
Borrowers are considering loans against property an ideal option to access formal credit.
However, before applying for a new line of credit, borrowers must have a comprehensive idea about types of mortgage loan, tenors, interest rates, and other associate aspects.
Understanding the meaning of a mortgage loan
A loan against property is a secured line of credit where a borrower pledges his or her collateral asset to receive the desire amount from a financial institution. A comparatively lenient framework permits applicants to qualify for a loan against property by meeting straightforward eligibility parameters.
Additionally, as the documentation and loan disbursal is done in minimal time, an applicant can realise the desire credit amount in a curtailed period. That is why applicants often consider mortgage loans a helpful debt instrument to cater to their immediate financial needs. As there is no end-use restriction, borrowers can use this money for medical expenses, business funding, personal expenditures, etc.
Different Types of Mortgage Loans Available
In India, the leading financial institutions offer primarily six different types of mortgage loans. These include:
Simple mortgage
A simple mortgage necessitates the personal liability of the applicant for pledging an immovable asset as collateral. Consequently, if the borrower fails to repay the debt, a lender can sell off this property to minimise losses.
English mortgage
In this type mortgage loan state that right of a pledged property is transferre to the lending financial institution upon the sanction of a credit request.
Consequently, this right will again be transferred back to the borrower at the end of loan tenor maturity if he or she successfully reimburses the lender.
Unlike the myths about loan against property, a borrower can use the pledged property – as the right to possession remains with the mortgagee.
However, a lender can occupy or rent the immovable asset under English mortgage rules.
Mortgage by condition sale
When an individual applies for this type of mortgage loan, he or she sells the property to the lender under certain conditions. This sale will become absolute if the borrower cannot reimburse this lender.
Alternatively, if an applicant successfully repays the debt without defaulting, the terms of the previous sale will be nullified under the law.
Usufructuary mortgage loan
When an applicant avails of this type of loan against property, the asset in question is figuratively handed over to the lender, not just its papers.
In other words, the lending terms of this loan allow a lender to utilise the pledge property for financial gains via means like renting it out.
However, the borrower bears no personal liability regarding the returns a lender receives using the immovable asset.
A lender will generally receive the property for a few years and remain solely responsible for regaining the amount lent via revenue.
Mortgage by title deed deposit
A borrower must keep all the documents needed for a loan against property within reach to ensure the approval process can be underway without any hitch.
For instance, a borrower can submit his or her property’s title deed to a lender to avail of an online mortgage loan.
Anomalous Mortgage
If a certain mortgage is not classified as any of these aforementioned categories, then it is referred to as an anomalous mortgage.
Lending terms of a mortgage loan
When applying for a loan against property, borrowers must compare lending terms of different financial institutions to determine the most beneficial alternative.
For instance, notable lenders in this country charge a competitive mortgage loan interest rate to borrowers.
Additionally, unlike a personal loan, an applicant can enjoy a prolonged repayment tenor of around 20 years for a LAP. Therefore, the borrower can reimburse his or her financier without an economic burden.
Additionally, an applicant can use the interest rate, loan tenor, and desired credit amount details to calculate the monthly installment he or she will need to pay. Borrowers can use the mortgage loan EMI calculator on a lender’s website.
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Meeting the EMI deadlines is crucial to maintain one’s creditworthiness so one can be eligible for a new line of credit. Lenders often extend pre-approved offers to existing customers who meet their eligibility criteria.
Such pre-approved offers help streamline the loan applications and are available on financial products, such as, home loans, loans against property, etc. Borrowers can check their pre-approved offers by entering their names and details in a lender’s portal.Considering all these aforementioned details is essential for a borrower when applying for a mortgage loan. This way, there is a mitigated risk of a credit application getting rejected.