What is a mortgage loan? 5 things to know about it.
When one avails a loan to meet financial emergencies, we often come across the word ‘mortgage’ in our application forms and wonder what it means. In simple terms, mortgage means ‘security,’ security that we need to provide to the financial company for extending a loan to us. When we opt to take a secured loan from a bank or an NBFC, it is mandatory to provide a collateral.
Here is a simple primer for a better understanding of what a mortgage loan is.
What is a mortgage?
A loan backed by a security, in the form of a property or real estate, is what is known as a mortgage loan. There are several types of loans that can be taken against a mortgage, the most common one being a home loan. In legal terms, however, a mortgage loan can be created on any immovable property that holds value and can be provided as a security interest to the loan-providing financial institution.
5 Things to know about a Mortgage loan
- Who can take a mortgage loan
A mortgage loan can be availed by
- an individual or
- a commercial entity.
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When an individual avails of a mortgage loan, a piece of property, a house or land is used as the commodity of the mortgage.
When a commercial entity avails of a mortgage loan, it can be availed over a commercial space, flat or any other piece of land.
- Requirements for a mortgage loan:
To apply for a loan against property, you need the following:
- Regular and steady income to be able to afford the loan
- A downpayment comprising of 3% to 20% of the purchase price which needs to be paid in cash by the borrower at the time of closing the deal.
- A decent credit score.
- Are there any restrictions for using the amount extended through a mortgage loan?
Money advanced against the security of property through a mortgage loan can be utilized for any financial emergency. It can be any personal expenditure like higher studies or marriage of children or for the development of a business or for meeting medical emergencies. There are no restrictions on the usage of a mortgage-backed loan.
- Types of mortgage loans legally permitted to be created in India
In India, when you apply for loan against property, two kinds of mortgage loans that are most popular. They are:
- By way of a registered mortgage
- By way of deposit of title deeds
Registered mortgage- Under this system, the security provider signs the deed and the bank is registered with the sub-registrar of assurances under whose jurisdiction the property mortgaged is located. If the borrower defaults in repaying the loan on time, the bank has the full right to recover their money by selling off the mortgaged property without involving the court.
Deposit of title deeds- Under this system, the title deeds of the property to be mortgaged is deposited. These documents are handed over to the bank or an agent of the bank for creating the mortgage through recording of the delivery of these documents.
- Documents required for availing a mortgage loan
The borrower needs to furnish the following documents to avail and apply for loan against property, or a mortgage-backed loan:
- Duly filled-in loan application
- Proof of identity
- Proof of income and address
- Documents proving the ownership of the property to be mortgaged
- Property valuation report
Final Take
Remember, mortgage loan interest amount is quite low as compared to other forms of loans and therefore it is a very popular and lucrative form of getting liquid cash for meeting huge financial crunches. Lenders, however, would study your income and employment history in detail to determine whether you would be able to comfortably repay the outstanding debt or not.
To know more about mortgage loans and their terms and conditions, you can simply visit the pnbhousing website and find answers to all your queries under one single window.
