Terrain of Mortgage Loans
- Loan

Exploring the Terrain of Mortgage Loans: Types and Options Unveiled

Mortgage loans, commonly known as Loan Against Property (LAP), are primarily used to leverage the value of a property for borrowing money. Besides, an individual can also apply for the same to purchase a home. Thus, it acts as a contractual agreement between a lender and a borrower, where the borrower can have access to the loan amount at a considerably low interest.

There are different types of mortgage loans, each of which serves distinctive purposes. Therefore, this article discusses its types and conditions to help borrowers choose the suitable one for them.

Types of mortgage loans

Given below are brief explanations of the various types of mortgage loans:

●       Simple mortgage

In the case of a simple mortgage loan, the borrower of the loan leverages the value of his immovable property, keeping it as a mortgage. In a simple mortgage loan, the lender possesses the right to take away the borrower’s land in case any disputes occur at the time of repayment of the loan with interest.

On the other hand, this type of mortgage does not involve the transfer of possession. It means the borrower can continue to live on his/her property.

Furthermore, the loan involves a quick and easy process of approval while also being flexible. It implies that, unlike other types of loans, the borrower has no restrictions on where he can use the loan amount.

●       Usufructuary mortgage

Unlike a simple mortgage loan, an usufructuary loan transfers the possession of the borrower to the lender. In this case, the lender possesses the right to use the property for any productive purpose to recover the mortgage debt.

The lender possesses the right to receive the debt through rent and profits till the mortgage debt is satisfied. Besides, there is no specific time limit for the repayment of the loan. However, if the loan amount is more than Rs.100, the mortgage property has to be a registered one.

●       English mortgage

In the case of an English mortgage loan, the borrower makes himself liable to repay the loan till a specific date while transferring the mortgage property to the lender. Therefore, the loan involves an absolute transfer of personal liability.

However, if the borrower is not able to repay the loan with the mortgage loan interest within the specified time, the lender possesses the right to sell off the mortgage property. Besides, the agreement of the sale has to be registered by the registrar.

Terrain of Mortgage Loans

●       Mortgage by title deposit

This type of mortgage requires the borrower to keep his title deed as a security to avail of a loan. In this case, the lender possesses no right to transfer the mortgaged property to him. However, the title deed, also called the sale deed, is the only document as the security till the repayment of the loan with interest.

Apart from this, it does not require any registration and it almost works similar to a simple mortgage loan. Also known as an equitable mortgage loan, one can avail of it simply through a contract on an oral basis. However, if the contract constitutes a written agreement, individuals must ensure to register it.

●       Mortgage by conditional sale

Mortgages that one can avail on a condition refer to mortgages on a conditional sale. In this case, the borrower avails loan from a lender, keeping his property as the security. The condition remains that if the borrower fails to repay the loan, his property gets transferred to the lender.

●       Commercial mortgage

A commercial mortgage is a type of Loan Against Property, where a commercial sector or a business avails a loan to purchase a commercial property. The major difference between this loan and other types of mortgage loans is that a commercial loan has a lower loan-to-value ratio than residential loans.

However, the terms and conditions of a commercial mortgage loan may include restrictions or penalties for prepayment. Besides, there may be fees included, in case of appraisals, surveys or any legal works.

●       Anomalous mortgage

An anomalous mortgage refers to a combination of two or more types of mortgage loans merged into one. In this case, for instance, a borrower can avail a loan from a lender, keeping his property as a mortgage. The lender then can have possession of the property, if the borrower fails in the repayment of the loan with interest. The lender can also use the property to speed up the process of repayment through rent and profits.

This way, it acts as both a simple and usufructuary mortgage loan. Therefore, the agreement of an anomalous mortgage loan is unique enough for it to be classified as a specific type of mortgage.

Mortgage loan eligibility criteria

Given below is a list of the eligibility criteria to apply for a mortgage loan:

  • For salaried individuals, the age limit is from 28 years to 58 years. While for self-employed individuals it is from 25 years to 85 years.
  • A self-employed individual must have a stable source of income, while salaried individuals must be from MNC, public or private sector.
  • Both self-employed and salaried individuals should be citizens of India.
  • The maximum loan eligibility is up to Rs.10.50 crore for salaried and self-employed individuals.
  • The tenor flexibility for self-employed individuals is up to 15 years, which is between 2 to 20 years for salaried individuals

Documents required for a mortgage loan

The following are the documents to apply for a mortgage loan for salaried individuals:

  • ID proof
  • Address proof
  • PAN card/ Form 60 of all applicants
  • Latest salary slips
  • Bank account statements needed for the previous 3 months
  • Documents of the property to be mortgaged
  • IT returns
  • Title documents

The following are the documents to apply for a mortgage loan for self-employed individuals:

  • ID proof
  • Address proof
  • PAN card/ Form 60 of all applicants
  • Documents of the property to be mortgaged
  • Bank account statements needed for the previous 6 months
  • Income documents like ITR returns and financial statements

There are various lenders who provide pre-approved offers to speed up the process of property loan approvals for cases of loans like LAP or home loans. Individuals can enter their names and phone numbers to check their pre-approved offers.

It is crucial to know about the different types of mortgage loans in order to make the right choice for you. Therefore, even though LAP involves lower interest rates with a quick process of approval it is advisable to check the different terms and conditions of a mortgage loan.