A mortgage loan is a debt instrument. Normally, people take mortgage loans to purchase property like home, land etc. A mortgage loan helps you raise money so that you can make up for your financial shortage and also purchase what you want. Mortgage loan is a Secured Loan. The loan is secured on the borrower's property. Going forward, the borrower needs to repay the loan as well as the interest amount on the loan within a particular period of time. Once the repayment is completely done, you will be able own the property on your name or get back your belongings. Mortgage loans are also known as or claims on property or liens against property. In case, you stop repaying your mortgage loan, the lender/bank has the complete right to possess and sell the secured property. A mortgage loan involves the following components - principal, interest, tax and insurance. Principal is the amount you actually borrow from your lender. Interest is the reward your lender receives for lending you the money. The interest rate plays a major role in increasing the size of your mortgage loan. Higher interest rates lead to higher mortgage payment. Tax and insurance payments are added to your monthly mortgage payments. Insurance provides you protection against future injuries that may be caused to your property. Also, your real estate taxes will be added to your monthly payments. The government will collect this tax on yearly basis and use that amount to fund various public and social sector activities. So, when you take a mortgage loan, you also need to understand the above mentioned components that affect the size of your mortgage repayments.
When you borrow funds with your mortgage, that particular borrowed amount is known as the principal. You will be required to pay off the principal amount for your mortgage loan on a monthly basis. This is also known as the mortgage balance. Apart from this, you will have to pay your interest on the loan also. Your mortgage payment will include the principal amount and the interest amount.
Your mortgage payment amounts will depend on the type of interest rate that you choose. The two forms of rates of interest include fixed interest rate and floating or variable interest rate. If you select a fixed interest rate, your payments will remain fixed throughout your loan tenure. On the other hand, if you choose a floating interest rate, your payments will depend on the changes in market rates and the benchmark rates.
The two main kinds of mortgage loans include:
During the initial period of your mortgage loan, you will have to most likely pay a high interest amount on your mortgage loan. This is because your loan balance will be pretty high during this period. Therefore, your equated monthly installments (EMIs) will mainly consist of interest for the first few months. The principal amount will be low. With time, your interest amount will come down as the loan balance would have reduced by now. Hence, your EMI will soon mainly constitute the principal amount. This particular flow of your EMI payment distribution is known as amortisation. This is how amortisation works in mortgage loans.
A mortgage loan is the best choice for high-value purchases. When you do not have sufficient funds to purchase an asset of high value, it makes perfect sense to apply for a mortgage. A mortgage will serve as your debt instrument that will assist you in bringing together funds for the purpose of buying high-value assets such as a house or real estate. Obtaining a mortgage is quite easy. If your credit score is good and if you meet the necessary eligibility criteria, you are good to go. Home ownership processes have become very easy over the years with the help of measures introduced for mortgage.
Lenders face a high value of risk as a high amount is involved in such mortgage loans, and the lender is not sure if the borrower will pay back the loan completely. However, a borrower should remember that if he or she does not repay the mortgage on time, then your lender can legally foreclose or seize your residential property in order to cover the losses incurred by your lender. Lenders can hold auctions for such properties.
When you plan to apply for a mortgage loan, you should be aware of a few common concepts that are associated with mortgage loans:
In order to get a mortgage loan, you need to fulfill certain minimum eligibility conditions. The following factors are considered while determining your eligibility for a mortgage loan:
The documents required for a salaried and self-employed individual differ slightly. A salaried individual needs to submit the following documents:
A self-employed needs to submit the following documents:
There are different types of interest rate applicable for mortgage loans in India. The most common types of interest rates sought after by the borrowers include fixed rate mortgage (FRM) and flexible or adjustable rate mortgage (ARM). In a fixed rate mortgage loan, you need to pay the same and fixed rate of interest for the whole tenure of your loan. You cannot opt for any change in the interest rate on your mortgage loan determined by your lender/bank, even if the interest rate rises and falls in the course of your tenure. Your monthly principal and interest payment don’t change. A fixed rate mortgage loan normally continues for terms like 15 year, 20 years and 30 years. A fixed-rate mortgage is also known as traditional mortgage loan.
On the other hand, a floating or adjustable rate mortgage loan is a kind of loan wherein the interest rate changes based on economic fluctuation. In a floating rate mortgage loan, the interest rate is fixed for an initial period. But, going forward, it changes based on economic condition and in relation to the prime lending rate of a bank. When the prime lending rate goes down, the interest rate on your mortgage loan will also go down. But, when the prime lending rate of your bank goes up, the interest rate on your mortgage will also rise. Thus, when the prime lending rate of a bank changes, the adjustable rate also changes. Many people opt for adjustable rate of interest when they decide to take a mortgage for a longer tenure.
There is another type of mortgage called interest-only mortgage. In interest only mortgage, you need to pay only the interest amount on your borrowed amount towards repayment. But, at the end of loan tenure, you need to pay off the principal amount as well. With this option, your interest repayments remain constant throughout the term.
Payment option ARMs is another type of mortgage you can opt for to pay off your mortgage loan. It helps you choose between different monthly repayment options such as an interest only repayment, a 15-year fully amortizing payment, a minimum payment etc.
However, different banks charge different Interest rates on Mortgage Loans. And these interest rates are subject to change from time to time without giving prior notification to customers.
You can easily calculate your monthly mortgage payments with the help of a mortgage loan EMI calculator. It is very important to calculate what your mortgage payment will be and how much you can afford to pay given that you borrow a huge amount of sum as mortgage loan. But, before using the calculator, you need to know a few things about your mortgage loan which include – your loan tenure, rate of interest and processing fee. After that, the only thing you have to do is to put this information in the calculator. Immediately, the calculator will reveal your monthly EMI liability for your mortgage loan along with payment break-ups, total payable amount and your loan amortization schedule. BankBazaar, the one stop solution for all your financial needs, provides a unique mortgagee loan calculator by using which you can easily calculate your monthly repayments towards mortgage loan. Calculating and knowing your monthly EMIs for mortgage loan is important as it reduces your confusions by giving you a clear picture of how much money you will need monthly to pay off your loan. Also, you can get to know the optimum amount you can afford to take as mortgage loan. It also helps in planning your budget and setting your other financial targets.
Being a debt instrument, you are bound to pay off your mortgage loan within a pre-determined period of time. Mortgage loans are normally taken by individuals and business entities for the purpose of buying and investing in real estate without paying the entire value of the purchase up front. But, if you fail to pay off your mortgage, the bank can foreclose or repossess your property. A mortgage loan is a long term debt designed to help you purchase your desired property.
You get ample time to pay off your loan, as a mortgage loan is normally taken for a longer period. The major factors that influence the repayments process are the size and term of the loan. The size of a loan refers to the amount borrowed from your lender and the term denotes the tenure of loan within which it needs to be repaid. If you borrow a huge of money for a longer tenure, you can pay it off by paying smaller EMIs. Because longer tenure results in smaller monthly repayments. That’ s why many people choose tenures like 20 years and 30 years to pay off mortgage loans.
Once you decide to take a mortgage loan and approach your bank, the bank representatives will help you in documentation. After submitting all required documents, bank will verify those documents, and upon successful verification of your documents, you bank will approve your mortgage loan.
Normally, the followings steps involve in the whole process:
A mortgage loan comes with the following attractive features and benefits:
Yes, you are eligible to apply for a mortgage loan even if you are a self-employed. Both salaried and self-employed individuals can opt for mortgage loans irrespective of their income.How much amount can I receive as mortgage loan?
You can get up to 80% of the registered value of your property. However, it depends on your property type and its market value, and bank’s policy.Can I take a mortgage loan for any other purposes rather than buying a house?
Yes, you can take mortgage loan for any purpose apart from purchasing a house. The amount received from mortgage loan can be used for a variety of personal and business related purposes.How many days does a bank take to disburse the amount taken as mortgage loan?
A bank normally takes 7 to 10 working days to disburse the money after submission of all necessary documents.What are the repayment options available to pay off a mortgage loan?
The easiest way to repay your mortgage loan is equated monthly installments (EMIs). Also, you can repay the same through post dated cheques (PDC) and electronic clearance system (ECS).Can I pre-close my mortgage loan before its predetermined date of closing?
Yes, you can pre-close your mortgage loan by paying the entire amount along with a prepayment fee charged by your lender. Normally, banks charge a very nominal amount for pre-closure.
Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.