A Guide for Homebuyers’ Different Types of Mortgage in India

India’s credit industry has witnessed a notable transformation in the last decade, and the secured loan segment has been a top contributor to it. Owing to its customer-friendly benefits, this loan type further helps individuals meet an array of requirements and repay it without much hassle.

Mortgage loans are a prominent example of secured loans. However, before going ahead with the application, one must know the definition and types of mortgage loans to find a product that suits their need.

 

What is a mortgage loan?

A mortgage loan is a type of secured loan where individuals avail funds by collateralising an immovable property. It is popular among borrowers, allowing them to avail a substantial amount for a longer repayment tenor.

This loan type is usually sanctioned against immovable assets like a house or a commercial property. Furthermore, the lender will keep hold of this property until borrowers clear their dues.

There are various types of mortgage, and all of them offer a set of different features that meet different purposes of mortgagors.

Categories of mortgage

• Simple mortgage

When an individual mortgages his/her property to source necessary funds, and lenders reserve the right to sell it in case of a default, it is known as a simple mortgage. It is one of the popular and convenient mortgage loan options. Loan against property is one of the prominent examples of this sub-type.

• English mortgage

In this sub-type, the borrower establishes personal liability, where he/she assures the financial institution to repay the loan amount. After that, the lender will transfer the ownership of the property.

• Usufructuary mortgage

This is a unique type of mortgage loan where the borrower offers the possession and right of earning profits to the lender till the loan is completely repaid. In the meantime, the financial institution reserves the right to generate earnings from that property by different means.

• Mortgage via submission of title deed

Also known as an equitable mortgage, the debtors submit the title deed of their property to avail necessary funds. A vital point to note here is that the property’s possession is not transferred, and borrowers can earn rent or profits from it.

• Mortgage with conditional sale

Under this mortgage, an agreement is put in place between the lender and the borrower, which states that a property will be sold in case of a default.

• Anomalous mortgage

As its name suggests, this mortgage loan type does not fall under any of the above mentioned categories.

Among these subtypes of mortgages, one particular financial product that has gathered popularity is a loan against property.

Features of loan against property

Here are some notable features of LAP loan that one should keep in mind before applying –

• Low-interest rate

The mortgage loan interest rates are considerably low compared to other forms of credit, especially unsecured ones that offer no end-use restrictions. Therefore, loan repayments become more convenient for debtors.

However, they must also be aware of the factors that affect the interest rate for LAP.

• High loan quantum

Moreover, the loan amount on offer is substantial. Lenders evaluate the market value of the concerned property and use the LTV ratio to decide the final loan amount. Borrowers can also use a loan against property calculator available online to find the loan amount in advance.

• Simple eligibility criteria

Usually, the eligibility criteria for LAP are lenient, and one can easily qualify for a loan against property by meeting them. Since these parameters differ from one lender to another, borrowers need to check specific requirements beforehand. However, meeting or surpassing them can help borrowers take advantage of favourable property loan interest rates.

Another point that borrowers can check here is the availability of pre-approved offers. It streamlines the application process, and it is applicable to financial products like home loans, loan against property, etc. Individuals can check their pre-approved offers by submitting their essential contact details.

Secured loans like these mortgage credits present a more accessible opportunity to borrow required funds against lenient loan terms. Hence, being aware of the types of mortgage and their benefits will allow borrowers to make an informed decision.