A mortgage Loan is a secured loan type that an applicant takes to buy a property such as a house or apartment.
It is a long-term loan with a repayment period of 15-30 years and for this period, you are free to use the property but until the tenure is over, you cannot sell the property as the property will be used as collateral for the purchase.
Mortgage loans are offered by banks and NBFCs, and they are a common way for individuals to purchase a home without having to pay the full price upfront.
The terms and conditions of a mortgage loan can vary widely depending on the lender, the borrower’s financial situation, and other factors like Credit Score.
In this article, we will explore the basics of mortgage loans, different types of mortgage loans available to borrowers, and much more.
But before that, let’s find out the different types of Mortgage loans available to the borrower.
Types of Mortgage Loans
Banks and Finacial Institution provides an applicant with three types of mortgage loan option and you’ll have to choose between them, sometimes, however, the banks may provide you with only one of the option, it depends on your profile.
The following are the types of loans Mortgage loans-
Fixed-rate mortgage
A fixed-rate mortgage is a type of mortgage loan where the interest rate remains the same throughout the entire repayment period.
This type of mortgage loan offers predictability and stability for borrowers. A fixed-rate mortgage is a good option for those who plan to stay in their home for a long time and want a consistent monthly EMI to be charged on them.
Adjustable-rate mortgage
An adjustable-rate mortgage (ARM) is a type of mortgage loan where the interest rate can change over time.
The initial interest rate is typically lower than a fixed-rate mortgage, but it can fluctuate based on market conditions.
ARMs are a good option for those who plan to move or refinance in a few years or for those who believe that interest rates will decrease in the future.
You need to keep an eye on the market and the inflation rate which directly affects the base rate of RBI. If the base rate goes up, you’ll be charged more interest and if the base rate goes down, you’ll have to pay less interest.
Government-backed Mortgage Loans
Under this type of loan, the Government facilitates home purchasing by backing the loan, and is only for some special category individuals.
Government-backed loans typically have lower down payment requirements and more lenient credit requirements than conventional loans. These loans are a good option for first-time homebuyers or those with lower credit scores.
Mortgage Interest Rates offered
The following are some of the bank’s interest rates offered-
| Lender | Interest Rate (p.a.) | Loan Amount | Loan Tenure |
| HDFC Bank | 8.75% Onwards | Up to 60% of the mortgaged property’s market value | Up to 15 years |
| State Bank of India (SBI) | 1.60% above the 1-year MCLR rate to 2.50% above the 1-year MCLR rate | Up to Rs.7.5 crore | Up to 15 years |
| Axis Bank | 10.50% Onwards | Up to Rs.5 crore | Up to 20 years |
| Citibank | 8.15% Onwards | Up to Rs.5 crore | Up to 15 years |
| HSBC Bank | 8.80% Onwards | Up to Rs.10 crore | Up to 15 years |
| PNB Housing Finance | 9.80% Onwards | Up to 60% of the property’s market value | Up to 15 years |
| IDFC Bank | Up to 11.80% | Up to Rs.5 crore | Up to 15 years |
| Karur Vysya Bank | 10.00% Onwards | Up to Rs.3 crore | Up to 100 months |
| Union Bank of India | 9.80% Onwards | Up to Rs.10 crore | Up to 12 years |
| IDBI Bank | 10.20% Onwards | Up to Rs.10 crore | Up to 15 years |
| Oriental Bank of Commerce | 10.95% Onwards | Up to Rs.10 crore | Up to 10 years |
| Federal Bank | 10.10% Onwards | Up to Rs.5 crore | Up to 15 years |
| Corporation Bank | 10.85% Onwards | Up to Rs.5 crore | Up to 10 years |
How to Apply for Mortgage Loan?
Whenever you are applying for a Mortgage Loan, you’ll have to go through various steps and phases in the process of the loan application will take. You might feel it is a haptic process but, the bank needs to follow the step, which is as follows-
Pre-qualification
The very first step for a mortgage loan application is to determine the house that you want to purchase and whether it is eligible for the mortgage loan. You’ll also have to find out how much you need the home loan and plan the entire process before applying to ensure you do not have to pay overly interest after getting the house.
Loan application
After you’ve planned out the process, you’ll have to apply for the loan wherever you find the offer attractive. Also, talk to the real estate agent to ensure that the loan provided by the agent is also on the table Be prepared to provide information about your income, employment history, debts, and other financial information.
Loan processing
After you’ve submitted your loan application, the lender will start processing your loan. This includes verifying your employment and income, checking your credit score, and appraising the property you want to buy. You may also have to pay the processing fee for the loan evaluation process.
Loan approval
If everything checks out, the lender will approve your loan and give you a commitment letter. This letter will outline the terms of the loan, including the interest rate, loan amount, and repayment schedule.
Loan closing
Once your loan is approved, you’ll need to attend a loan closing to sign all the necessary paperwork like NOC, etc., and complete the transaction. This typically takes place at a title company or attorney’s office and involves paying closing costs and fees.
Documents required for Mortgage Loan
The following are the documents required for the Mortgage Loan-
Salaried Individual
- Duly filled loan application form
- Passport-size photographs
- Identity proof (PAN card, Aaadhar card, passport, driving license, voter ID card, etc.)
- Address proof (electricity bill, ration card, Aaadhar card, driving license, rental agreement)
- Latest salary slips
- Form 16 issued by the employer
- Latest bank statements
- Processing fee cheque
Self-Employed Professional/Individual
- Duly filled loan application form
- Passport-size photograph
- Identity proof (PAN card, Aaadhar card, passport, driving license, voter ID card, etc.)
- Business proof
- Financial statements for the last 3 years
- Latest income tax return certificates (last 3 years)
- Profit and loss statement (P&L)
- Latest bank statements
- A cheque for the processing fee
Factors to Consider before getting a Mortgage Loan
Here are some of the factors that you’ll have to consider before getting a Mortgage Loan-
Interest rates
The interest rate on a mortgage loan is one of the most important factors to consider. Interest rates can vary depending on the type of loan, the lender, and other factors.
Even a small difference in interest rates can have a significant impact on your monthly mortgage payment. So try to get the minimum interest rate possible
Loan term
The loan terms are the period in which you’ll be provided by the bank to repay the mortgage loan to the bank.
A longer loan term typically means lower monthly payments, but you’ll end up paying more in interest over the life of the loan. A shorter loan term means higher monthly payments, but you’ll pay less interest overall.
Based on your monthly payout affordability, you can decide on the loan tenure.
Down payment
The down payment is the amount of money you’ll need to pay upfront to secure the loan. The higher the down payment, the lower the monthly mortgage payment will be. Try your best to pay as much as possible as a downpayment to reduce the monthly EMIs.
FAQ
Yes, you are still eligible for the loan if you have a bad credit score but you’ll be charged a higher interest rate with a higher down payment amount.
The minimum down payment varies from property to property, a general downpayment of 3-20% is considered a normal minimum downpayment for purchasing the property.
The time it takes to process a mortgage loan application can vary depending on the lender and the complexity of the application. Typically, it takes between 30 to 45 days to process a mortgage loan application.
Yes, you can pay off your mortgage loan early. However, some lenders may charge prepayment penalties for paying off the loan before the end of the term.
Yes, you can use a mortgage loan to buy a vacation home. However, the terms of the loan may be different from a traditional mortgage loan, and you may need to make a larger down payment.
