Mastering Mortgage Loans: Complete Guide to Benefits, Interest Rates, Eligibility, and More

bySharath ReddyLast Updated: November 16, 2023
Mortgage Loans: Benefits, Interest Rates, How to Apply

A mortgage loan, also known as loan against property, is a secured loan where the property (commercial or residential) against which the loan is taken itself serves as a collateral for the loan. The loan amount depends on the value of the mortgaged property and the interest rate charged by the banks.
Mortgage loan generally have relatively lower interest rates as compared to other types of loans, such as personal loans. If you are wondering whether a mortgage loan is the right choice for you, read the article to find out more about its benefits and how to apply.

What is a Mortgage Loan?

A mortgage loan is one of the safest loans available as it allows people to use their property/assets as security when they need funds. If the borrower has trouble making payments, the bank can sell the mortgaged property to recover the loan amount. 
This collateral-based security makes mortgage loans very secure and low-risk. Because of this, banks offer these loans at low-interest rates and for extended periods, like 15, 20, or even 30 years.

Home Mortgage Loans vs Mortgage Loans – What’s the Difference? 

A home mortgage loan is essentially a loan for buying a house. You secure it with the house you’re purchasing, which means a this is a type of mortgage loan. On the other hand, a mortgage loan is broader in scope. It allows you to use any property you own as collateral to obtain funds for various financial purposes.

What Are the Benefits of a Mortgage Loan?

Here are some of the key benefits of mortgage loans

  • Under the Income Tax Act of 1961, you can reduce your taxable income by deducting loan principal and mortgage loan interest (within limits), resulting in lower taxes.
  • Business owners can deduct the entire loan amount from taxes when using a second mortgage for business purposes, promoting business growth.
  • Mortgage loans benefit both borrowers and lenders. Banks have minimal risk because they secure the loan with your property. If the lender can’t make the payment on time, there may be a penalty applied to the overdue amount. As long as you meet repayments, you keep property ownership.
  • Choose from various interest rate options, like floating rates, fixed rates, and interest-only mortgages.
  • You can use different types of properties as collateral, including under-construction, fully constructed, residential, or commercial.
  • Mortgage loans provide a cost-effective way to borrow money, offering smaller monthly payments due to longer repayment durations.

How to Apply for a Mortgage Loan?

If you are applying for a mortgage loan, follow this step-by-step process:

  • Choose a lender: Pick a reputable lender that suits your financial situation.
  • Application: Fill out the application online or visit a branch, submitting the necessary documents.
  • Loan details: Specify the loan amount and tenure and check the mortgage loan rates. 
  • Eligibility check: The lender will review your information.
  • Document submission: Provide required documents for verification.
  • Sanction letter: If approved, you will receive a sanction letter.
  • Mortgage property documents: Submit original property documents before disbursement.
  • Loan processing: The bank will process the application.
  • Disbursement request: After approval, request loan disbursement.
  • Mortgaged property evaluation: The bank will assess your property.
  • Closing: Finalise the property transaction and mortgage details.

Who Can Apply for a Mortgage Loan?

Different banks have different checklists of criteria for mortgage loan approval. However, here are some of the common factors used to determine your eligibility:

  • Income and age
  • Mortgaged property’s market value
  • Qualifications and occupation
  • Assets and liabilities
  • Number of dependents.

Documents Needed to Apply for a Mortgage Loan

The documents needed to apply for a mortgage loan may vary based on your employment status, whether you are self-employed or salaried. Also, the exact set of documents required differs from bank to bank. Here’s a list of the commonly required documents-

  • Identity and address proof (PAN card, Aadhar card, passport, driving licence, voter ID card, etc.)
  • For salaried individuals: Salary slips and bank statements of the past 6 months.
  • For self-employed individuals: Certified financial statements for the past 3 years and bank statements for the last 6 months.

Relevant mortgaged property documents

What to Keep in Mind When Applying for a Mortgage Loan

  • Loan amount: The amount you can secure depends on your property’s value, typically with a 40% to 60% margin, influenced by property condition and age.
  • Interest rate: Mortgage loan interest rates vary between 11% to 15%, with options for floating or fixed rates. Compare rates from different lenders.
  • Fees and charges: Be aware of processing, documentation, application, inspection, overdue, late payment, and conversion fees, as they can impact the total loan cost.
  • Tenure: Repayment periods can extend up to 15 years but may be shorter for overdraft facilities.
  • Repayment schedule: Different banks offer varying repayment options; clarify with your lender, especially regarding EMIs.

Key Tips to Secure a Lower Mortgage Loan Interest Rate

To reduce your mortgage loan interest rate:

  • Check interest rates for different loan amounts.
  • Choose the loan tenure wisely as it affects the interest rate.
  • Look for lenders offering interest rate promotions.
  • Avoid multiple loan applications, as rejections can lower your credit score and lead to higher interest rates.
  • Borrow an amount that fits your financial capacity.

The Bottom Line

Mortgage loans can be a great way to finance your home purchase or fulfil your other financial needs. You should be careful and ensure you can repay it, as it involves your property as security. It is important to compare offers from different lenders and choose the loan that is right for your individual circumstances.

What is the maximum loan I can get against my property?
The maximum loan you can get depends on various factors such as your property’s value, your income, your credit score, and the bank you choose.
I have an existing loan; can I still get a mortgage loan?
Yes, however, some banks may have policies against granting a mortgage loan if you already have an existing loan with them.
Can I get a mortgage loan if my mortgaged property is jointly owned?
Yes, but you and your co-owner(s) will have to jointly apply for the loan. Keep in mind that specific requirements for mortgage loans concerning jointly owned properties may vary from one lender to another.

You May Also Like