What are the types of mortgage loan?
A mortgage loan is a secured loan where a borrower pledges their property as collateral to secure funds. It has become a popular financing option due to its sizable loan amounts, relatively low interest rates, and flexible repayment tenures. In India, there are several types of mortgage loans, each catering to different needs and circumstances. These include the simple mortgage, usufructuary mortgage, English mortgage, mortgage by conditional sale, mortgage by title deed deposit, and anomalous mortgages. Each type offers distinct features and terms, and understanding these types of mortgage loans can help borrowers choose the best option based on their requirements.
Types of Mortgage Loan
There are several types of mortgage loans available, each designed to suit different financial situations and borrower needs:
- Fixed-rate mortgage: This is one of the most common types, where the interest rate remains the same throughout the loan term. The consistency of monthly payments provides stability and helps with long-term financial planning.
- Adjustable-Rate Mortgage (ARM): With an ARM, the interest rate starts lower than a fixed-rate mortgage but adjusts periodically based on market conditions. Typically, the rate is fixed for an initial period before it resets. While ARMs offer lower initial rates, they carry the risk of higher payments if interest rates rise.
- Interest-only loans: In this type of loan, borrowers pay only the interest for a specified period, and no principal is paid during this time. While monthly payments are lower initially, the principal balance remains unchanged, which means higher payments later when the principal repayment begins.
- Reverse mortgages: Available to seniors aged, reverse mortgages allow homeowners to convert their home equity into cash without monthly payments. The loan is repaid when the homeowner moves, sells the property or passes away. This type is often used to supplement retirement income.
How Does a Mortgage Work?
A mortgage is a long-term loan used to buy a home, with the property serving as collateral. The borrower repays the loan in installments, typically monthly, which include principal (the loan amount) and interest. Mortgage terms usually last 15 or 30 years, with interest rates being either fixed or adjustable. If the borrower fails to repay the loan, the lender can foreclose on the property. Key factors like credit score, income, and debt-to-income ratio impact the loan approval process. Over time, as the mortgage is paid down, the borrower builds equity in the home.
Also Read: Types of loan against property
Mortgage loans by Bajaj Finance
Bajaj Finserv offers mortgage loans at competitive mortgage loan interest rates to finance your big-ticket purchases. These loans combine the best features of the various mortgage types listed above and include:
- Home loan
- Loan against commercial property
- Loan against residential property
- Land purchase loan
- Loan to purchase another commercial property
- Lease rental discounting
Check our mortgage loan eligibility requirements carefully before applying. Also, know the Mortgage Loan interest rates to plan your finances accordingly. Avail them by following simple Mortgage Loan process.
Additional Read: What is Mortgage?
Mortgage Loan Complete Process
- Pre-Qualification: Estimate loan eligibility based on basic financial details.
- Pre-Approval: Lender verifies income, credit, and offers a conditional loan.
- Property Search: Find a home within the approved loan range.
- Loan Application: Submit financial documents and apply for a mortgage.
- Appraisal & Underwriting: Lender assesses the home’s value and verifies information.
- Loan Approval: Final approval based on all checks and documentation.
- Closing: Sign paperwork, pay closing costs, and transfer ownership.
- Monthly Payments: Start making mortgage payments to repay the loan over the agreed term.
Mortgage FAQs
The two main types of mortgage loans are:
- Simple mortgage: The lender has the right to sell the mortgaged property if there is a payment default.
- Usufructuary mortgage: The possession is transferred to the lender. The lender can receive rent or profit from it without putting a personal liability on the borrower.
Simple mortgage: In this type of mortgage, the borrower repays the loan amount in EMIs over a mutually decide tenure.
‘Mortgage’ and ‘home loan’ are terms that are often used interchangeably, but they refer to different aspects of the process of obtaining financing for a property purchase.
- Mortgage: A mortgage is a legal agreement between a borrower (homebuyer) and a lender (usually a bank or financial institution). The borrower uses the property they're purchasing as collateral for the loan.
- Home Loan: A home loan, often referred to as a ‘housing loan’ or ‘property loan,’ is the financial product that allows individuals to borrow money from a lender to purchase a home or property.
Yes, self-employed individuals can avail of special mortgage loans. These loans typically require additional documentation, such as tax returns and business financials, to verify income and ensure eligibility.
A bridge loan is a short-term loan used to "bridge" the gap between the purchase of a new property and the sale of an existing one, often with higher interest rates.
Yes, there are specialized mortgage loans for first-time homebuyers. These typically offer lower interest rates, reduced down payments, and more flexible qualification criteria to make homeownership more accessible.
A negative amortisation mortgage occurs when monthly payments are lower than the interest due, causing the loan balance to increase over time. This can result in owing more than the original loan amount.
A permanent mortgage in construction financing refers to a long-term loan that replaces a construction loan once the project is completed, providing permanent financing for the newly built property.
