A mortgage is an immovable asset that a borrower surrenders to the lender as collateral to secure a loan. A mortgage can be a housing property, a commercial property, land etc. The borrower pledges the mortgage to the lender to avail the loan against it. If the borrower fails to repay the amount, the lender can assert their rights on the mortgaged property. In the context of the Indian system, there are several different types of mortgage loans for an applicant to choose from.
Types of mortgage loans:
Simple mortgage: Simple mortgage loans work on one basic rule. The lender reserves the right to sell the property to retain the money if the borrower fails to repay. The borrower must sign an agreement confirming the due course of action if they cannot repay on time.
Conditional mortgage: In a conditional mortgage, the lender might put a few conditions around their rights over the property. The lender may put a condition that they could sell the property if the borrower misses a payment. Failure to make timely payments may result in the lender imposing a higher interest rate.
Usufructuary mortgage: Usufructuary loans allow lenders to exercise ownership rights on the mortgaged property. Lenders can use the property for rental, commercial, residential, or other purposes. The lenders do not have the right to make permanent changes to the property or sell it.
English Mortgage: The borrower must transfer the property’s ownership to the lender in an English mortgage. The lender is legally bound to return the property once the loan is repaid.
Fixed-rate mortgage: When a lender guarantees a fixed interest rate against the mortgage, it becomes a fixed-rate mortgage. If the borrower is not under some emergency, looking for a fixed-rate mortgage loan is advised.
Equitable mortgage: Equitable mortgage charges, also known as mortgage by deposit of title deeds, involve the borrower depositing their property’s title deed with the lender as collateral for a loan until repayment. This process creates a charge on the property without requiring any formal legal procedures.
Reverse mortgage: A reverse mortgage loan works quite differently than other types of mortgage loans. A reverse mortgage loan is designed to help senior citizens above 60 to support their monthly expenses. Here, the bank inspects the worth of the asset pledged and loans up to 75% of the asset’s value. Unlike all other mortgage loans, the loan amount is not paid in one go. It is divided into a tenure of up to 15 years and paid monthly. It takes work to evaluate reverse mortgage interest rates manually. Borrowers can use a reverse mortgage loan calculator india to determine their best option.
How to choose the right mortgage loan?
A borrower must check for a few other things before mortgaging their property to make an informed decision. Unlike loans taken against a down payment and general financial credibility, mortgage loans put much at stake. So here are the factors that help a potential borrower determine their most suitable option.
Affordability: A borrower should consider whether they can pay the interest, especially with fluctuating interest rates. If a fixed-rate mortgage loan is unavailable, it is essential to understand the terms and conditions of alternative options carefully. Borrowers tend to commit to an amount and interest they cannot manage during immediate funding needs. It is advised to use a loan against the property calculator before making these decisions.
Tenure: The longer the tenure, the easier the process. Borrowers must always look for an option that gives them room and flexibility. Borrowers must look for reputed lending institutions with exceptional loan policies that offer longer tenures to repay the loan. A shorter and rigid tenure leaves no room to accommodate unpredictable life changes.
Lender: One must always opt for a credible lender to mortgage their property. Always look for a registered and secure financial organisation or NBFC with a reputation for loans. A thorough legal investigation is necessary before finalising a lender.
One must always seek advice from an expert before applying for a Loan Against Property. Using a loan calculator for reverse mortgage or any other type of mortgage is advisable. The borrower should consider the information in this article before taking a mortgage loan.