Purchasing a home is often one of the most significant financial decisions in an individual’s life. It represents an exciting opportunity to own a place of one’s own. However, the process of obtaining home financing can be confusing for first-time home buyers. This comprehensive article breaks down everything you need to know about mortgage loans to help you make informed decisions.
What is a Mortgage Loan?
A mortgage is a formal agreement between a borrower and a lender where the lender can claim the mortgaged property if the borrower happens to default on the loan. The primary purposes of mortgages are to buy a house or to borrow money by using the value of an existing house as collateral.
By offering collateral in the form of actual property, applicants can obtain favorable loan conditions and satisfy their financial or homeownership needs. Until the applicant has paid back the debt in full, the mortgaged property serves as collateral. Another name for mortgage loans is loans secured by real estate.
Different Types of Mortgage Loans in India
There are different kinds of mortgages to consider when applying for a home loan.
- Simple Mortgage: It means the bank or non-banking financial company (NBFC) can sell your property if you fail to repay the loan. But you still own the property until then.
- Usufructuary mortgage: It involves handing over control of the property to the bank or NBFC. They can earn money from the property, like collecting rent, but don’t fully own it.
- English mortgage: In this mortgage, the lender can take full ownership of the property if the applicant defaults on payments during the loan period. The exact terms depend on what was agreed upon.
- Sub mortgage: It is for applicants with lower credit scores. Loan providers still provide loans but charge higher interest rates, compensating for the increased risk if repayments are missed. Borrowers must understand the higher rates and costs involved with these mortgages before signing.
How Does a Mortgage Loan Work in India?
A mortgage loan allows someone to borrow money to purchase real estate. A lending institution, like a bank or NBFC provides the loan, and the real estate purchased acts as collateral for the loan.
Over an agreed repayment period, usually between 15 and 30 years, the applicant pays back the amount borrowed plus interest charges by making monthly payments to the loan provider.
The monthly payments are used to repay the principal and interest on the loan. Over time, these payments gradually reduce the total amount owed.
If the applicant misses too many payments and defaults on the loan, the bank or NBFC can take back the home through foreclosure. They can then sell the property to recover the outstanding loan balance. This demonstrates the secured nature of mortgages - the home acts as security in case repayments fail.
How to Apply for Mortgage Loan
Applying for a mortgage loan is easy, especially with online mortgage options gaining popularity. Here is a step-by-step guide for applicants:
- Explore Loan Providers: Research banks and NBFCs, comparing mortgage loan rates, processing fees, and customer support. Online mortgage platforms are a great starting point.
- Verify Eligibility: Check if you meet requirements like a stable income, a good credit score (usually 700 or higher), and Indian residency.
- Get Mortgage Pre Approval: Request pre-approval to learn your loan limit, which will help you find a property within your budget.
- Select a property: Choose a property with clear legal titles and approvals, as loan providers will verify this.
- Collect Documents: Gather identity proof (Aadhaar, PAN), address proof (utility bill), income proof (salary slips, ITR), and property papers (sale deed, NOC).
- Submit Your Application: You can submit your mortgage application online through the provider’s website or app or visit a branch for in-person support.
- Await Verification: The provider will review your documents, credit history, and property details, sometimes conducting a site visit.
- Review the Offer: Check the loan terms, including mortgage loan rates and repayment period, before signing the agreement.
- Receive the Funds: Once approved, the loan is disbursed to complete the purchase or other purposes.
This process, especially with online mortgage tools, fits well into the busy lives of applicants.
What Factors Determine Mortgage Eligibility?
When financial institutions assess a mortgage application, some key aspects determine approval and the rate/terms offered:
- Income: The primary factor is based on stability and the amount to cover payments.
- Credit score:Credit score: Lenders assess your borrowing and repayment history. A higher credit score generally improves your eligibility and may help you secure better terms.
- Total debt obligations: Total debt obligations: Lenders evaluate your monthly debt payments relative to your income to ensure you can manage new loan repayments.
- Down payment amount: Loan providers look for a reasonable personal contribution to a transaction.
- Loan-to-value ratio: Compares the loan amount to the appraised property value.
How to Get the Best Mortgage Rates?
Beyond meeting eligibility criteria, the following tips can help secure you a competitive interest rate:
- Research multiple providers: Compare quotes from banks, NBFCs, and fintech firms.
- Improve credit score: It may take time, but boosting your score can save thousands over the loan term.
- Opt for shorter loan tenure: 15-year loans often have lower interest rates.
- Make a larger down payment: Signals reduced risk and may qualify for better pricing.
- Lower total debt obligations: Manage other credit balances and avoid new financing when possible.
Conclusion
A thorough understanding of mortgage loans is essential for achieving confident and informed homeownership. This guide has comprehensively covered the fundamental aspects of mortgages as well as the application process. By considering mortgage pre-approval, comparing loan interest rates, and utilising online mortgage platforms, offered by lenders such as Shriram Finance, prospective borrowers are well-prepared for a seamless and efficient journey toward securing a home loan.
