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Mortgage Loans

Mortgage Loans

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Mortgage loans are availed by giving up something that you possess or own, as collateral, to the lender. A mortgage loan is a loan against property, and the term property can include a residential space (house), a commercial space (office or shop), or an investment (a non-agricultural piece of land).

Since the loans are backed by personal property, they are essentially secured loans. The borrower’s personal property stays in the lenders’ possession until the loan is fully paid.


Types of Mortgage Loans

Mortgage loans terms are available for periods ranging anywhere between 10 to 30 years

Floating-rate Mortgage

The mortgage loan is subject to market fluctuations, wherein the interest rates vary as per the prevailing market rates. Although interest rates cannot be predicted, one can get an idea about current interest rates from the lender’s website. The rate of interest varies with the Marginal Cost of Funds based Lending Rate (MCLR).

Purposes of Mortgage Loan

Mortagage loans can also be availed for the following purposes:

  • Purchasing of a home
  • Purchasing of a commercial property such as an office or a shop
  • Loan against property - There are no restrictions towards the end-use for this loan. A loan against property can be used for funding a wedding or overseas education.

Features


  • The lenders accept only certain types of property - real estate or otherwise - as collateral. These are most likely fully-constructed homes or commercial office spaces and shops.
  • Another mandate is that the property holds a marketable value and be a freehold premise. The latter gives the owner the complete and legal right to transfer the ownership of the property.
  • The mortgage loans are customizable as per the circumstances and requirements of the borrower.

Important Mortgage Terminology



  • Amortization

    Amortization is where the outstanding balance of the principal (loan amount) reduces with every payment. This is because the monthly EMI comprises two components: the interest and the capital charge. Amortized mortgage loans are structured such that the initial EMI payments constitute a higher interest component. Over time, the interest proportion reduces, and more of the payment goes towards the principal, that is, the capital charge.

  • Down Payment

    A down payment is the amount paid upfront when purchasing a residential or commercial property. The size of the down payment varies according to the schedule and the structure of the loan. However, the larger the down payment, the better are the loan terms, and the monthly payments are lower.

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