In one’s lifetime, there arise several situations that involve unavoidable and immediate expenses. Such expenses include higher education, medical emergencies, business expansion, and marriage. The most appropriate and hassle-free way to fund these expenditures upfront would be by availing of a mortgage loan. But first, let’s see what a mortgage loan is.
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What is a Mortgage Loan?
A mortgage loan is referred to as a loan against property, whereby a lender allows the borrower to pledge property as collateral and grants a loan against it. The property pledged can be a residential house, commercial shop, or even non-agricultural land. In simple words, the borrower can still be the owner of the property while paying off the loan.
In the case of a commercial property or a residential building, a loan against property mandates that the property is constructed completely. It has to be a freehold property with a marketable value.
The property should be free from encumbrances, such as an existing mortgage or any charge on the property. If the borrower is unable to repay the loan, they can consider selling the property to claim a settlement. This article will help you learn more about the necessary details about this loan.
Top Three Factors That Affect a Mortgage Loan
The top factors that impact a mortgage loan are as follows.
Property Location: A property located in the heart of a city typically attracts higher resale value. The interest rate for such a property is also likely to be lower. On the other hand, a property located in an area that lacks basic amenities will have a lower value and incur a high-interest rate.
Credit Score: If a borrower maintains a credit score of 750 or above, they have higher chances of securing a mortgage loan at a lower rate of interest.
Loan Size: If the loan against property is of a sizable amount, the lender may sanction the loan at a high mortgage loan interest rate predicting risk. Therefore, a borrower must accurately determine the loan requirement before applying.
How to Apply for a Mortgage Loan in Three Easy Steps?
The following steps suggest how to quickly apply for a mortgage loan:
- The borrower needs to assess the loan amount required.
- The borrower needs to decide on the interest rate and repayment they would be comfortable with.
- The borrower needs to check the eligibility criteria and calculate the loan amount preferably using an EMI calculator.
The representative will approach the borrower and complete formalities, which include verification of address, property, and identity. Once things are in place, the desired loan amount is sent for approval to the lender. The loan against property approval process typically takes up to 48 hours.
Mortgage Loan Interest Rates
Lenders usually offer attractive loans against property interest rates, which helps the borrower’s repayment to be convenient and affordable. The interest rates for self-employed individuals vary between 10.50% and 14.50%. For salaried individuals, the interest rate ranges between 10.10% and 11.50%.
Further, most lenders allow borrowers to pay a loan against property over a tenor extending up to 15 to 20 years. When the tenor is longer, the payment schedule is spread over longer durations, which results in comfortable and lower EMIs. If a borrower belongs to a lower-income category, they can opt for longer tenors that will help them get relatively smoother loan approval.
Borrowers must also note that the maximum amount of loan that is eligible for a borrower to avail is dependent on the loan to value (LTV) ratio. The latter depends on several factors and when lenders offer the best LTV. The LTV ratio can range between 70% and 80% of the market value of the property.
Mortgage Loan Calculator and How It Helps
It is always advisable to use a mortgage calculator as it provides an accurate estimate of the monthly outflow towards the mortgage payment. The borrower can find such a calculator online or also on the lender’s website.
It is an easy-to-use tool, wherein a user can insert the property price, loan term, down payment, and the interest rate to know the EMI outgo. The calculation can be done manually but some may find it difficult and time-consuming. However, to help understand the calculation better, the formula is provided below:
P*r*(1+r) ^n/([1+r) ^n]-1)
Here, P denotes the amount of loan to be borrowed
r denotes the rate of interest
n is the loan tenor in months
A loan against property is one of the easiest ways to arrange money, especially in times of need. However, before availing of such a loan, borrowers must make sure that they are capable of repaying the loan as the inability to do so can result in the lender getting the right to auction the property for recovery.
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