Property Mortgage Loans: What You Need to Know Before Signing Up

A property mortgage loan is a long-term commitment allowing you to use your property as collateral to secure funds. Now, be it for purchasing a house, refinancing an existing loan, or even just an effort to unlock value for some other financial need, this article will guide you through the process of applying for a property mortgage loan. 

What is a Property Mortgage Loan

A mortgage loan refers to a loan in which the borrower pledges a property to the lender as a form of security for securing the loan. In lieu of this, the lender shall provide the funds to the borrower, either from the bank or the finance institutions. Therefore, if he fails to pay the loans taken, the lender will recover the amount using rights to seize the mortgaged property. 

Types of Mortgage Loans

• Home Loans: This is the most popular mortgage loan, mainly applied for purchasing a new or resale of a residential property. The quantum of the loan will be placed over the purchased property, and the borrower will pay that sum based on the tenure period of 10 to 30 years in the form of equated monthly installments.

• Loan Against Property, also known as LAP, is securing a loan against an existing property. This property can either be residential or commercial. The loan amount is mainly for personal use, such as medical treatment, education, and sometimes, business expenditure. This loan amount varies between 60% to 80% of the property's market value.

• Commercial property loans are meant for purchasing or constructing business sites, offices or other industrial buildings. 

• Home Equity Loans: These loans allow homeowners to borrow money against the equity in their home. Home equity refers to the difference between the property's current market value and the outstanding balance on the existing mortgage. 

What Is Mortgage Loan Interest Rate?

The mortgage loan interest rate represents the cost a lender charges for borrowing money. It is one of the primary factors that determines the total cost of the loan. A lower interest rate typically results in lower EMI (Equated Monthly Installment) payments, making borrowing more affordable. Conversely, higher interest rates lead to higher EMI payments, increasing the overall cost of borrowing.

Important Factors to Keep in Mind Before Signing up for a Mortgage Loan

• Eligibility Criteria: They measure parameters to determine if you qualify for a mortgage. Their parameters include income, age, credit score, liability, and the property's value. Most of them require a minimum credit score with which they can consider lending someone a mortgage- the lowest is 750, sometimes even more.

• Loan Amount: It is primarily a percentage of the market value of the property. Home loans usually involve 75% to 90% of the property value provided by the lender. Loans against property may range anywhere between 60% to 80% of LTV ratios.

• Repayment Tenure: The tenure of the mortgage loan depends on the institutions offering it, but generally, it's between 10 to 30 years. The higher the tenure, the less the EMI amount helpful for monthly payments, and vice-versa.

• Processing fees and other charges: Besides the rate, lenders can charge processing and legal fees, among other administrative charges. That increases the lending cost, so one should know all the other charges before signing up with the lender. 

• Prepayment and foreclosure charges: Some lenders demand charges on the borrower if he pays in advance and forecloses the loan before term completion. Other lenders do not require charges for paying in advance on their loans.  

• Tax saving opportunities: Under Section 80C, Income Tax Act, you can get home loan repayment principal deductions up to ₹1.5 lakh in a year. You can also add the interest paid under Section 24(b) taken on buying or constructing a residential property up to ₹2 lakh in a year. 

Advantages of Property Mortgage Loans

• Large Sum: Mortgage loans allow you to generate large sums of money you would require to buy property, businesses, or even house renovation. 

• Low Rate of Interest: This loan is covered by property, and thus, the rate of interest is low compared to that of unsecured loans.

• Longer Repayment Period: The tenure of mortgage loans is long. This reduces your monthly payments.

Drawbacks of Property Mortgage Loans

• Risk of Losing Your Property: You are threatened with losing your property because as soon as you default on performing your repayment schedule, they will be used to repay the loan.

• Processing Time: Processing time takes longer than an unsecured loan since it has the property evaluation process and other paperwork that must be set in order.

• Extra Cost: Adding the processing fees and lawyer fees, among others, contributes to the extra cost of the loan. 

Conclusion

Property mortgage loans are a good choice for financing the purchase of your property or some other requirement. Before opting for it, just be aware of the terms, interest rates, and eligibility conditions. Use EMI calculators and tax-saving calculators to make wise decisions. Compare different types of lenders, interest rates, and loan terms; then, you can have a mortgage loan that can prove of utmost use based on your financial condition.