What is a Mortgage Loan: Types, Eligibility and How to Apply
Mortgage loans refer to a type of loan which can only be used to purchase or maintain a home or plot of land. It is a secured loan sanctioned against an immovable asset like a house or commercial property. This is a popular method of buying a house as many people cannot afford the high upfront costs.
In a mortgage, the borrower agrees to pay the loan amount through a series of payments, which includes the interest and principal. Lenders hold the property papers till full repayment, and then the borrowers can get full ownership of the house. If they stop paying the mortgage, the lender can foreclose the property to recover his/her dues.
Types of Mortgage Loans in India
1. Home Loans
A home loan is a mortgage offered for various housing needs like purchasing a new home, reconstructing an old one or buying a plot of land. Many lenders offer low interest rate home loans with flexible tenure.
2. Loan Against Property (LAP)
Borrowers can mortgage their residential or commercial properties to get financing from lending institutions. These are secured loans with no end-use restrictions and thus, can be used for a variety of purposes like weddings, medical treatment, overseas education etc.
3. Commercial Purchase Loans
These are taken by businessmen to buy commercial properties for shops, office space or other commercial complexes. They have competitive interest rates and can only be used for specific purposes.
4. Lease Rental Discounting
Mortgage loans can also be taken against leased properties. Such mortgages are called leased rental discounting. Here, the financial institution sanctions the loan based on the monthly rent amount.
5. Reverse Mortgage
This is a recently introduced mortgage in India for senior citizens. It works in the exact opposite way of traditional mortgage loans such that the lender pays a steady income every month like EMIs for the entire life of the senior citizen.
Who Can Apply for a Mortgage Loan?
The eligibility criteria that you need to fulfil to get a mortgage loan will differ with various financial institutions. Given are some important factors that will decide if you can get a mortgage:
- Age criteria: The minimum age requirement is around 21 to 24 years, depending on whether the applicant is salaried or self-employed. The maximum allowed age is usually around up to 65 years.
- Employment: Salaried employees will need to have a certain income (usually above Rs. 30,000) to be eligible for a mortgage. They should also have a stable job with a reputable employer and be employed for at least 2 to 3 years in their current profession.
- Credit Rating: Most lenders will require you to have a minimum CIBIL rating of 750 to get a mortgage. The better the credit rating, the better the chances to get favourable terms on tenure, EMI and interest rates.
- Documents: Applicants need to have KYC documents and property papers, such as sales deeds, tax receipts, approved building plans etc.
- Multiple Owners: Having multiple co-owners with decent credit scores can make it easy to apply for a mortgage.
How Does the Mortgage Process Work in India?
- Step 1: Send the Loan Application
The mortgage process begins with the sending of the loan application form to the lender. You will be required to provide personal details along with documents for proof of identity, age, address, income and property ownership.
- Step 2: Pay the Loan Processing Fees
Once you have sent the application, you will have to pay a certain processing fee to the financial institution. It can range from 0.25% to 0.5% but can be negotiated.
- Step 3: Wait for Verification
Within 2 to 3 days of submitting the loan application, your lender will send officials to evaluate your application and decide the loan amount. They may also visit your workplace to verify all details that you provided in the loan application.
- Step 4: Sanction/Approval from Lender
The financial institution will verify all details and review things like your income, repayment capacity etc., before making a final decision. After that, they will send you an official sanction letter containing terms like sanctioned amount, interest rate and tenure.
If you agree to the loan terms, you have to submit a signed acceptance copy to the lender. - Step 5: Property Verification
Before final approval, you will have to send original copies of the sales deed, no objection letter and other documents for verification. They will also conduct a legal verification followed by a technical valuation of your property.
- Step 6: Finalizing the Loan Agreement
After the lawyer clears all paperwork, the lender finalises the documents and gets them stamped and signed. You will have to sign the agreement and submit all original property papers.
- Step 7: Disbursal
Finally, the lender will dispense the loan amount based on the agreed-upon terms.
How to Compare Mortgage Rates of Different Lenders?
Lenders offer different types of mortgage rates depending on your credit history, debt-to-income ratio and employment history. You can use an online mortgage loan calculator on their websites to compare the interest rates of home loans and LAPs.
These calculators let you compute the EMIs, providing a detailed breakdown of the total amount payable. You simply need to enter the loan amount, tenure and interest rate.
Also Read
Mortgage Rates from Different Lenders in 2022
The following table gives a brief overview of minimum interest rates for mortgage loans.
| Name of Financial Institutions | Minimum Home Loan Interest Rates | Minimum Loan against Property Rates |
| State Bank of India | 7.55% | 9.30% |
| HDFC Bank | 7.55% | 8.25% |
| Axis Bank | 7.60% | 8.90% |
| ICICI Bank | 7.60% | 8.35% |
| PNB Housing Finance | 7.50% | 8.25% |
| IDBI Bank | 7.50% | 8.15% |
| Bank of Baroda | 7.45% | 9.15% |
| Navi | 7.93% | 8.39% |
Final Word
Mortgage loans come at attractive interest rates and offer enough funds for your needs. You can take a home loan to become a homeowner or get a loan against property to get funds for your other needs. Financial institutions offer long and flexible tenures and affordable EMI options for both these loans.
Navi offers instant home loans of up to Rs. 1.5 crore with a paperless and hassle-free application process. Download the Navi app and apply for a loan easily.
FAQs
Ans: Fixed interest rates: The interest remains fixed throughout the loan tenure.
Floating interest rates: The rates are adjusted as per prevailing market rates.
Ans: Yes. Self-employed individuals who have been in their profession for several years and have a stable income can take a mortgage loan.
Ans: Yes. However, all the co-owners of the property will have to apply for the mortgage as co-applicants. Note that only family members of individuals and key members of companies are usually eligible for joint loans.
Ans: Applicants need to submit the following documents to apply for mortgage loans:
• Identity proof
• Address proof
• Proof of income
• Age proof
• Bank statements
• Salary slips
• Property papers
Ans: You can get loans at lower interest rates by taking measures like increasing your CIBIL score, choosing a shorter tenure or getting a balance transfer etc.
Before you go…
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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