A mortgage is a process where a person borrows money from a financial institution against an immovable property (Real Estate). The property can be residential or commercial as well. The financer holds the property as security until the repayment is made. In case when a borrower fails to repay the loan amount, the lender can sell the property to recover the unpaid dues.
Below are the most common types of Mortgage loan in India
- Loan against property (LAP) – The most common type of loan LAP is offered against commercial and residential properties. The financial institutions deposit the original documents of the property to provide you with a mortgage loan. The funds can be used for any personal or professional financial needs. Use a mortgage loan calculator to calculate the amount of loan and EMIs for your better understandings of the amount to be repaid
- Home Loan – The second most type, much in demand for buying a residential property. Also known as a housing loan, people can enjoy this loan for a new purchase or build a house on land they have already purchased. With a low rate of interests and the longest repayment schedule, a home loan is always in high demand
- Commercial Purchase Loans – Mostly liked by business people and other professionals, this type of loan is used for buying a commercial property. You can buy a shop, an office space, or any other commercial piece of land with the help of this loan. The property loan interest rates vary for different financial institutions
- Lease rental discounting – Mortgage loans can also be availed against the leased properties. The EMIs are easy to pay with the help of a monthly rent amount. The period of the loan and the total amount of the loan depends on the period of lease
Also Read :- A full guide to a Pre-Approved Personal Loan
- Second Mortgage Loan – Most financial institutions also mortgage properties that are already under a loan. A borrower can apply for an additional loan on the property for their financial requirements. Commonly known as a top-up loan, it is much based on the borrower’s credit score and the repayment history
- Reverse Mortgage – This loan type is a recently introduced loan and is primarily for senior citizens. Senior people who do not have a steady income but have a property in their name can avail of this loan. They are required to mortgage their property, and the lender pays them a fixed amount, just like an EMI, every month. On their death, the financial institution has a right to sell the property, and the loan amount is deducted from the amount of the property sold. Balance is given to the legal heirs
Types of interest rates for a property loan
There are mainly two types of interest rates while mortgaging your property:
Fixed-rate of interest: Here, the interest remains the same for the entire tenure of the loan. There are times when interest rates are increased or decreased, as per the market situations. May there be any change in rate; a borrower has to pay on the fixed rate. Consider the property loan interest rates while choosing a mortgage loan.
Floating rate of interest: In this scenario the interest changes as per the market situations and as per RBI guidelines. The change in interest will affect your EMIs.
The floating rates of interest are linked with the Marginal Cost of Funds-based Lending Rate (MCLR). A mortgage loan calculator will help you in calculating an EMI over the loan taken.
Most financial institutions offer the above types of various loan facilities to their borrowers at attractive interest rates on all commercial and residential properties. When you want to know more about your loan requirement’s suitability, you can always ask your agent or the financial institution of your choice. They are there to guide you through the entire loan process; the documents required will help you opt for the best loan suiting your personal profile.