Saturday, 4 February 2017

Mortgage loans – What they are, what they do

As a rule, most people steer clear of taking loans. Admittedly, taking a loan is a huge responsibility – you must be sure to make regular repayments and juggle your other finances for years. But there comes a time when taking a loan becomes a necessity. One may be in urgent need of money for a personal or professional need. It is not always possible to raise money from private sources.

Hence, it is feasible to take a loan from a reputed financial institution. You may choose to take a personal loan, or you may leverage your owned property by taking a loan against it. This option is known as a mortgage loan.

You can pledge your owned residential or commercial property to get a mortgage loan. These loans are more affordable than personal loans, since they are secured loan products. The best financial institutions in India offer quick, hassle free mortgage loans at good rates of interest as well.

Why consider a mortgage loan?

Mortgage loans are computed up to 70% of the property’s market value at the time of application. Such as is done with home purchase loans, the property and the applicant’s credentials are thoroughly vetted before the approval is granted. The paperwork for the loan is straightforward and hassle free. The lender issues a list of documents required to be submitted with the application form – these include the applicant’s antecedents, monthly income, credit history, property papers, etc. Like with home loans, the borrowed sum is paid back via EMIs.

Mortgage loans are more affordable than personal loans, but slightly more expensive than home purchase loans. The home loan rates are normally in the range of 9% to 10.5% (these have reduced after demonetisation across banks and financial institutions), while mortgage loans may have interest rates of 12% and higher. However, lending institutions are more amenable about granting mortgage loans, since the property credentials have already been established. Thus, the turnaround time from application to disbursal is lower as compared to other loans.

The applicant is also likely to get a higher loan amount when applying for a mortgage loan. Make sure to use a loan EMI calculator to get an approximation of how expensive the EMI will be. When taking the loan, you must check for the interest rate being offered, the lender’s repayment terms (if foreclosure fees are charged, for instance), processing charges, etc.