A mortgage loan is a popular secured funding option that one can avail by providing an asset as collateral. Usually, borrowers can avail mortgage advances like loans against property to cover both professional as well as personal funding needs.
A borrower needs to make full repayment of the total loan liability to release their collateralised property from mortgage. Also, these advances usually come with a long repayment tenor, extending up to 20 years with reputed lenders.
Repayment of these advances is similar to that of others and is based on the amortisation schedule fixed by the lender. The loan amount, however, depends on the current market price of the property being mortgaged as well as the LTV or loan to value ratio decided by the lender, among other factors.
The working of a mortgage advanced is explained below.
Working process of mortgage loans
The following aspects can provide a detailed insight into how a mortgage loan works.
- A mortgage advance like a loan against property is considered one of the most convenient ways to raise size-able funds of up to Rs.3.5 crore. However, when applying for it, borrowers must analyse their repayment capacity beforehand.
- A strong financial profile can prove beneficial in obtaining the loan at affordable terms. One’s credit profile is measured by an excellent credit score, timely payments, and responsible use of previous debt tools, among other parameters. Hence, applicants should be cautious about these factors when applying for the advance.
- One must meet all the eligibility requirements to apply for the advance. Also, accurate and detailed information on the property purchase along with all the relevant documents need to be submitted to the lenders during the application.
- Applicants should pay attention to all the terms and conditions like fees, type of mortgage loan interest rate, etc. mentioned in the offer document before signing it to avoid any future conflicts.
- Once availed, borrowers can repay the loan liability in EMIs extending over a tenor of up to 20 years.
Eligibility parameters and compulsory documents
Information about all the eligibility criteria and mandatory documents required by lenders has always proven beneficial in simplifying the advance-availing process. Meeting all the requirements increases the chances of loan approval.
- Eligibility criteria
The following elements of borrowers’ personal and financial profile define their qualification for a mortgage loan.
- The monthly income acts as one of the prime determiners of individuals’ eligibility.
- Both self-employed and salaried candidates can apply for this loan.
- Depending on an applicant’s employment status, the age bar can change. For example, 33 to 58 years of age threshold is fixed for salaried individuals. For self-employed individuals, it ranges between 25 and 70.
- Self-employed individuals must earn a stable income. As for salaried individuals, they can be employed with any MNC, public or private organisation.
- Necessary documents
- A duly filled application form along with a passport-size photograph.
- Identity proof like PAN, Aadhaar, voter ID, passport, driving license, etc.
- Residential proof such as ration card, voter ID, passport, etc.
- Salary slips for at least the last three months in the case of salaried applicants.
- Form 16 and ITR file for both applicant types.
- Account statements of the previous six months for both.
- Proof of office address and the last three years’ financial statements verified by a CA as well as and business continuity proof for self-employed individuals.
Types of interest rates
Another important factor to better understand how a loan against property is processed is the mortgage loan interest rates. In India, most lenders provide three types of interest on a mortgage.
- Floating or flexible rate
As the name suggests, floating rates can fluctuate based on the RBI’s repo rate determined as per various economic factors. Suppose the repo rate increases, the lending rates for such loans increases too and vice versa.
- Fixed lending rate
Contrarily, fixed rates are known to be constant for the entire loan repayment tenor. As such differences can create a considerable variation on interest accrual and the consequent EMIs, individuals should compare fixed and floating rate to understand what is better for their loan against property application.
- Mixed lending rate
Moreover, if borrowers apply for a loan with a mixed rate feature, they have to pay interest at a fixed rate for a specific duration, beyond which interest is calculated at the floating rate. Unlike the other two that are widely applicable across loan segments, this option is mostly available for mortgage financing.
With this decision on interest rate type, individuals can proceed to apply for the advance with their selected lender.
For a simplified and time-saving application process, individuals can opt for lenders who provide pre-approved offers on loans. These offers are available on several financial products like home loans and loans against property. Applicants can check their pre-approved offer by providing their phone number and name.
Lastly, as a mortgage loan comes with a long-term repayment liability, borrowers need to plan their finances to ensure timely EMI payments throughout the tenor. Such planning can also help build a reliable borrower profile by increasing their credibility.
