Owning a property can
prove to be a beneficial thing. It is a high-value asset. It also comes to your
rescue when you need a large sum of money urgently. You can use your property
to take out a mortgage loan by pledging it to the lender. Lenders accept flats,
plots of land, business premises or commercial spaces as mortgage. The loan
amount is determined according to the market value of the mortgaged property,
which remains with the lender as collateral until the loan is repaid in full.
Here are 7 types of mortgages available in India.
Mortgage
property loans are typically segregated on the basis of interest rates. These
include:
Fixed
rate mortgages: As the name suggests, a fixed rate
mortgage is offered to borrowers at a fixed interest rate. Such a loan helps
borrowers understand their loan liability even before they approach the lender.
This is attributed to the fact that you can calculate your EMI with the help of
a mortgage
loan calculator even before you apply for the loan. Therefore,
you can predict the exact EMI payable, before taking out a mortgage.
Variable/Floating
rate mortgage: The variable or floating interest rate on
mortgage fluctuates as per market movements. While you pay a fixed base rate
(below which you cannot avail the loan as per RBI norms), the interest rate may
be different every month, based on how the economy or stock market is
functioning. RBI policies can also affect the variable mortgage rate. You
should opt for a floating mortgage rate only if you predict that the economy is
on a growth trajectory.
Adjustable
rate mortgage: This is a unique kind of mortgage loan
against property in which the borrower pays a fixed interest rate for certain
tenure, after which the interest rate charged may be higher or lower, based on
the economy’s performance. This type of mortgage is more complicated than other
mortgages due to several reasons. For instance, banks offer discounts on
interest rate for a certain period initially, but the processing fee charged is
typically high. Also, lower initial EMI results in higher loan eligibility for
borrowers. Moreover, a fixed rate of interest in the initial period also offers
a higher loan liability certainty for borrowers during that initial period of
the loan.
Mortgage
loans are also segregated in accordance with the nature of transaction between
borrowers and lenders. These include:
Simple
mortgages: In this type of mortgage, the mortgaged property is
not transferred by the borrower, but the lender retains the right to sell off
the property and recover losses if the borrower is unable to repay the loan.
Usufructuary
mortgages: Here the borrower sells the property to a lender in
order to receive an income that may be adjusted against the principal and/or
interest amount of the mortgage.
Subprime
mortgages: This a loan against
property offered to borrowers who have a poor credit history,
which is why they end up paying a higher interest rate. The high interest rate
is charged so that the lender is properly compensated in case the borrower
defaults on repaying the loan.
English
mortgage: This is a type of mortgage in which borrowers
transfer the property to the lender for being unable to repay the loan by a
predetermined tenure. Once the loan is repaid in full, the property is once
again transferred to the borrower.
Just like a regular home
loan, a property mortgage loan is also available for longer tenures, which
means you can repay the loan in easy, affordable Equated monthly installments. But
you must do your research before finalising a lender.
