What is Mortgage Loan? How Does It Work Actually 

mortgage loan purpose

A mortgage is a type of loan used to purchase a home, land, or other types of real estate against collateral that can be residential or commercial property. There are many types of mortgage loans available today, depending on your financial health, needs, and preferred tenor for the loan. Mortgage loans are secured loans with competitive interest rates and long repayment periods. The ownership of the property used as collateral in these loans remains with the lender until the loan is fully paid off. Now that we know the meaning of a mortgage loan, we can say that it is an easy solution to financial crunches like business expansion, weddings, a child’s education, or medical expenses.

How does Mortgage Actually Work?

When you get a mortgage, the lender gives you the said amount of funds to help you out of your cash crunch against the agreed collateral. You repay your loan with interest over a fixed tenor agreed by you and get back the ownership of the collateral once the loan is fully paid off. The interest rate here is determined by the current market rates and the lender’s willingness to take a risk by looking at your credit score, profile (age, income), property type, and condition. The amount of money the lender will lend is determined by what you can afford to pay back and, most importantly, the property’s market value as assessed by the lender. The lender will, at the most, lend 65-75% of the property value.

Types of Mortgage Loans in India

A mortgage loan meaning is to deposit something as a guarantee or collateral against a loan you will avail of. Mortgage loans are secured loans for borrowers and can be of various types. Some of the different types of mortgage loans are:

1. Loan against Property (LAP)

Most commonly known as LAP, a loan against property is one of the most popular forms of secured loans that can be obtained against your property. Your property is pledged as collateral against a loan here during a financial crisis. To avail of funds, one has to mortgage their property with the lending institution till the entire amount is paid off. To calculate the EMIs on loans against the property, you can use the online calculator to be better prepared. This makes it easier for the borrower to calculate the funds that need to be arranged and paid to the lender.

2. Commercial Purchase

A commercial purchase loan is taken to purchase commercial properties like office plots, shops, and commercial areas. Such loans are most commonly used by entrepreneurs and small businesses. The funds from this loan can be used to buy the property only and not for any other personal or professional use. Most banks offer competitive rates for these loans but these loans are comparatively costlier than the other types of mortgage loans.

3. Lease Rental Discounting

People owning a residential or commercial property may lease it. In times of need, they can get a mortgage loan against the leased properties, and this is known as ‘lease rental discounting.’ The monthly rent is then converteing into EMI. Here are the loan tenor and the loan amount depending on the time frame till when the property will be kept as a lease. The lease agreement is referred to for this purpose by the bank or NBFC that is providing the loan.

4. Second Mortgage Loan

Often extra financial help may be required for business, medical reasons, or property repair work that crops up suddenly. Banks and financial institutions offer this loan on the property that is already under loan and mortgaged. In other words, if a borrower has already purchased land or estate by taking a loan and needs additional funds, they can avail of additional funds under the second mortgage meaning using the same property as collateral. Such loans are approved based on the credit score and the past repayment history of the borrower.

Read Also: Hidden LAP Loan Benefits, Eligibility, Interest Rate & Risks

5. Reverse Mortgage

This is a special loan for senior citizens introduce recently in India. Many senior citizens in India do not have a steady monthly income. But they own a property. Mortgage meaning and reverse mortgage are the exact opposite. The senior citizens can keep this property as a mortgage with the bank and the lender pays them a regular amount each month just like EMIs. Upon the death of those senior citizens, the lender sells the property. The loan amount paid to senior citizens is deducting from the value of the property. The rest of the proceeds are given to the legal heirs of the senior citizens.

6. Home Loan

A home loan is the most popular and frequently used loan option in the country. People generally use this type of loan for the construction of their homes, undertaking renovation and major repairs to an existing house, or purchasing an under-construction property or home. A borrower can opt for a small, medium, or even a large-sized home loan option depending on their requirement. The benefits of this type of mortgage loan are the nominal interest rate, comfortable tenor, and tax benefits. The loan availed of can be used for the house only and can’t be used for any other personal or professional needs.

Final Words

It is advisable to carefully study the various types of mortgage loans available in the market and understand clearly the mortgage meaning before proceeding. Know the pros and cons of each type before you avail of any mortgage loan or you could end up losing your asset.

Read more blogs on this website.

By 12disruptors Admin

Leave a Reply

Your email address will not be published. Required fields are marked *