Everything you should know about Mortgage Loans and how you can avail one for yourself
There are a few different types of home loans that you can avail of. Each one serves a different purpose and suits different buyers. One of the most preferred options in home loans is a mortgage loan. Here is all you need to know about mortgage loans.
What is a Mortgage Loan?
Mortgage refers to the process of offering something as a guarantee or collateral against a loan. One may come across the term when looking for secured loans.
Generally, home loans of all types are secured loans. The borrower must offer their property as a security to the lender. The property mortgaged acts as collateral until the borrower has repaid the loan in full. Mortgage loans are also commonly known as loans against property.
A mortgage loan can be used to either buy or build a house or refinance a property. Refinancing refers to getting a new loan for a property while the original loan is still being repaid. It is usually done to get a loan with better terms.
Types of Mortgage
Different types of mortgages are available to prospective borrowers. Before you accept one, it is best to know your options and ensure that you are making the best choice. Here are the types of mortgages you should know about.
Simple Mortgage
A simple mortgage is an agreement that if the borrower is unable to repay the loan in full, the lender can sell the property that was offered as collateral and recover their amount. However, the property is not transferred to the lender.
Usufructuary Mortgage
In this case, the property is transferred to the lender, who can then earn profits from the same. Usufructuary mortgage usually does not offer full ownership but rather a temporary right.
English Mortgage
The collateral can come under the possession of the lender if the borrower fails to make full repayment of the loan during the tenure originally agreed upon.
Sub Mortgage
If a prospective borrower has a less than ideal credit history or a low credit score and the lender would like to offer a loan, they tend to do so at higher interest rates. It is done to ensure recovery of their money in case the borrower failed to make payments. These are termed as sub mortgage loans.
Mortgage Loan Process
The process of applying for a mortgage, or a loan against property, is broadly similar across all available avenues. Before starting your mortgage loan process, make sure that it is the right option for you. Different banks will offer different repayment tenures, interests, and so on. Researching your options beforehand is essential.
Once you shortlist the banks you can apply to, check their eligibility criteria and application requirements. If you are eligible, gather all the required documents. It usually includes your proof of identity, address, and income, as well as come property-related documents. Some banks may offer the option to apply online, but in most cases, you may be able to visit the nearest branch.
The application may take anywhere between three to 10 days, depending on your eligibility.
How does your mortgage impact your Credit Score?
A mortgage loan will have some effect on your credit score. However, whether it reflects positively or negatively will depend on how well you handle the loan and repayment.
If a reputable financial organisation, NBFC, or a bank like IDFC FIRST Bank, approves a home loan for you, it reflects well on you and shows that you are a worthy borrower. To help this boost your credit score further, ensure that you make all repayments and close your loan on time.
It is better to apply at a couple of shortlisted banks where your chances of approval are higher, rather than applying to multiple places.
IDFC FIRST Bank offers you mortgage loans with features like extended loan tenure, superior customer service, easy documentation, and a higher loan value of up to 80%. These features make it among the best banks for mortgage loans.
Why do people need mortgages?
The price of a home is often far greater than the amount of money that most households save. As a result, mortgages allow individuals and families to purchase a home by putting down only a relatively small down payment, such as 20% of the purchase price, and obtaining a loan for the balance. The loan is then secured by the value of the property in case the borrower defaults.
Can anybody get a mortgage?
Mortgage lenders will need to approve prospective borrowers through an application and underwriting process. Home loans are only provided to those who have sufficient assets and income relative to their debts to practically carry the value of a home over time. A person’s credit score is also evaluated when making the decision to extend a mortgage. The interest rate on the mortgage also varies, with riskier borrowers receiving higher interest rates.
What does fixed vs. variable mean on a mortgage?
Many mortgages carry a fixed interest rate. This means that the rate will not change for the entire term of the mortgage—typically 15 or 30 years—even if interest rates rise or fall in the future. A variable or adjustable-rate mortgage (ARM) has an interest rate that fluctuates over the loan’s life based on what interest rates are doing.
How many mortgages can I have on my home?
Lenders generally issue a first or primary mortgage before they allow for a second mortgage. This additional mortgage is commonly known as a home equity loan. Most lenders don’t provide for a subsequent mortgage backed by the same property. There’s technically no limit to how many junior loans you can have on your home as long as you have the equity, debt-to-income ratio, and credit score to get approved for them.