Mortgage Loan Interest rates, Eligibility & Calculator

A mortgage loan is a type of loan where property/real estate is the collateral. It is pledged to borrow money. You/borrower have to enter into an agreement with the bank. You get cash upfront and then make payments over a period of time through EMIs. The bank/lender has possession of the original property documents till you repay the loan.

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Mortgage Loan Interest rates, Eligibility & Calculator

Types of mortgage:

• Simple mortgage:

In a simple mortgage, the mortgagee (This could be a bank/lender), does not enjoy possession of the property. The mortgagor (one who pledges the property), makes a legally binding agreement to repay the mortgage. The mortgagor gives the mortgagee the right to sell the property, to recover the dues.

• English mortgage:

In this agreement, the mortgagor agrees to repay the mortgage money within a certain date, and then transfer the property to the mortgagee (bank/lender). The mortgagee agrees to retransfer the property back to the mortgagor once the dues (mortgage money), is repaid as per terms and conditions.

• Usufructuary mortgage:

The mortgagor (borrower) gives possession of the property to the bank (mortgagee), until mortgage money is repaid. The mortgagee also receives rent/other benefits from the land. The mortgagee/bank agrees to appropriate the property in lieu of interest/payment of mortgage money.

• Mortgage by deposit of title deeds:

The mortgagee (bank) provides documents of title of immovable property to the mortgagor with intent to create a security of the same.

• Mortgage by conditional sale:

The mortgagor sells the property to the mortgagee with a condition that the sale will be absolute/permanent on a default. If the mortgage dues are paid, the sale is null and void and the mortgagee will transfer the property back to mortgagor.   

Functioning of a mortgage loan:

The money you borrow on the mortgage is the principal. You have to pay back the principal amount on the mortgage each month. In addition you have to pay back interest on the loan.

Repayments depend on type of interest rate which may be fixed or floating rate. Fixed rates mean payments remain constant across loan tenure. Floating rates change with market rates.

Amortization in mortgage loans:

Amortization means spreading out the loan into a series of fixed payments over time. You pay off the loan principal and interest in different proportions each month.

When you repay a mortgage loan, the repayments are divided into two parts:

• Interest costs (Your bank gets this for a loan given to you).
• Reducing loan balance. (This is paying off the loan principal).

At the beginning of the mortgage, most of the money you pay goes in interest repayments. Only a small portion goes towards principal repayments. As time passes (more repayments are made), each payment goes towards principal as most interest payments are already made. In amortization, the entire loan is paid off within the tenure. The last mortgage payment closes off the loan.

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How is a mortgage loan helpful to borrowers?

• Money to meet medical emergencies.
• Money for higher education.
• Money for marriage expenses.
• Money for travel and vacation.
• Money for a bridge loan to buy another property.

Primary concepts of mortgage loan:

The word mortgage is a French word which means “dead pledge”. This pledge ends when the mortgage is repaid. Mortgage is an encumbrance where the owner pledges his interest in a property as security/collateral for a loan.

Mortgages have interest rate which is scheduled to amortize (paid back) over a tenure extending around 30 years. Residential, commercial or industrialized property can be mortgaged.

Mortgage loan eligibility:

• Salaried and self-employed citizens can avail a mortgage loan.
• Mortgage loan or LAP can be availed up to 60-70% of the value of the property. This depends on bank rules and type of property.
• Minimum age is 21 years. The borrower should not be over 60 years when repaying the loan.
• The bank conducts due diligence to check property title documents and the value of the property.
• A take home salary of Rs 25,000 or above a month.
• A credit score of around 650-700 is considered good.
• At least 3 years of work experience. For self-employed a stable business of 5 years and above.
• Self occupied and vacant residential property, commercial and industrial property can be pledged for the mortgage.

Documentation required for mortgage loan:

Salaried:

• Fill the application form with photograph.
• Identity proof like PAN or Passport.
• Address proof like Voter ID or Driving License.
• Latest salary slips
• Form 16
• Bank statements of the last 16 months.
• Cheque for processing fees.

Self-employed:

• Fill the application form with photograph.
• Identity proof like PAN or Passport.
• Address proof like Voter ID or Driving License.
• Last 3 years income tax returns
• 6 months bank statements.
• Cheque for processing fees.

Mortgage loan interest rates:

Interest rate varies depending on type of property. It’s around 12-15% a year.

How to use mortgage loan calculator?

• Enter loan principal amount.
• Enter rate of interest on loan amount.
• Enter the loan tenure over which the loan must be repaid.
• The calculator will show you the EMI payable.

Mortgage loan process:

• Choose a lender based on interest rates and other factors.
• Log on to the portal and fill the application form. Submit necessary documentation.
• Property must have a clear and marketable title.
• Lender evaluates based on age, CIBIL score, existing EMIs being paid, income, job stability and so on.
• A good CIBIL score could fetch lower interest as the bank is open for negotiations.
• The bank offers a loan sanction letter and if you are happy with the terms and conditions, sign the duplicate.
• The bank will send a representative to physically check the property at its location.
• After property verification and signing of the loan agreement, loan amount is disbursed.

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