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With infinite features, immense benefits, and offering a host of options, mortgage loans are undeniably the most sought-after secured loan in the market today. It is a type of loan that is offered against a pledged property or collateral like real estate by the borrower to avail funds. In most cases, the loan amount amounts to roughly 70% of the current property value. Among the many benefits, a mortgage loan offers a comparatively low-interest rate and the possibility to repay it at a convenient time. With six different mortgage loans available to borrowers, they can choose depending on the need and affordability.

Different Types of Mortgage Loans In India

A mortgage is a process of depositing something as a guarantee or collateral against a loan. You may usually come across mortgage loans when looking for secured loans in the market.  There are various kinds of mortgage loans accessible to potential borrowers. Hence, before making a selection, make sure to select the best option. Here are the types of mortgages you should be aware of:

  • Home Loan

  • Reverse Mortgage

  • Second Mortgage Loan

  • Lease Rental Discounting

  • Commercial Purchase

  • Loan against Property (LAP)

1. Loan against Property (LAP)

Loan against Property is commonly called LAP is one such secured loan that can be obtained against your property. Your property can be used as collateral against a loan when you have a financial crisis. In such times, you can easily pledge your property as security and secure a loan. To avail of the funds, one has to mortgage their property with the lending institution till the entire amount is repaid on an EMI basis. Offered for a tenure of generally up to 15 years, LAP can be used for personal or professional needs by the borrowers. Most banks, NBFCs, or other financial institutions even provide online LAP calculators on their websites for the sole purpose of calculating EMIs for loans against property. This makes it immensely convenient for the borrower to calculate the funds that need to be arranged and paid to the lender.

2. Commercial Purchase

It is advisable to conduct thorough research before choosing a loan for your business. As the name suggests, a commercial purchase loan is usually taken to purchase commercial properties like office plots, shops, and commercial areas. They are most commonly used by entrepreneurs and small businesses that are usually in need of spaces to run their businesses. Most banks and NBFCs offer competitive interest rates to lure borrowers who can use these funds only to purchase the land or estate. This kind of loan is usually more costly when compared to a loan for residential property, but the returns from the commercial property investment are worth it.

3. Lease Rental Discounting

Lease Rental Discounting or LRD is a term used to offer a loan against rent receipts resulting from lease agreements of property. The borrower gets a loan amount equivalent to the value of the property and the discounted value of rentals. Leasing out residential complexes or commercial areas is quite common, and a mortgage loan can be easily taken out against them. This process is called ‘Lease Rental Discounting’ and is quite a common practice amongst borrowers and lenders. In this type of mortgage loan, the monthly rent is converted into EMI, and accordingly, the loan amount is decided. The tenure of the loan taken as well as the amount of the loan procured relies on the tenure till the property remains leased out. 

4. Second Mortgage Loan

There are several reasons as to why one may need extra financial help – from medical reasons to property repair work, there may be a number of requirements why you may need to raise funds. One way is to consider your own home’s equity that can prove to be a larger backup than any other asset you have in your possession. In such a situation, you may consider a second-hand mortgage loan, which is basically a loan against a property that is already under a mortgage. In other words, if today a borrower has purchased land or estate by taking a loan and is in need of additional funds, it is possible to take an additional loan on the same property under the second mortgage loan type. The loan is approved based on the credit score and the past repayment history of the borrower.

5. Reverse Mortgage

This is a very newly introduced mortgage type in the country, especially for senior residents. We all are aware that senior occupants usually may not have a stable income or enough funds to manage their daily expenses. But, if they are in possession of some kind of property or land, they can use it to fund their daily expenses. This is how a reverse mortgage operates. The senior citizen would have to keep their real estate or land as a mortgage with the concerned bank or NBFC in return for which the lender pays them a fixed amount of money every month, similar to an EMI. In the event of the sudden demise of the borrower, the financial institution has the right to sell the concerned estate and keep all the funds. The amount paid to the senior citizen is deducted from the funds acquired, and the remaining amount is returned to the legal heirs.

6. Home Loan

Home loans offer a one-stop resolution to any homebuyer and hence, amongst the different types of mortgages, is the most frequently used home loan option in the country. A borrower can opt for a small, medium, or even a large-sized home loan option to fund their purchase. The primary benefit of this type of mortgage loan is the nominal interest rate, comfortable timelines, and immense tax benefits. People generally go for a home loan for the construction of their homes, renovation, and major repairs to the existing house. The other reason could be to purchase an under-construction property or home. However, the key criteria for taking a housing loan are that it can be used only for the house and not for individual or commercial purposes.

Conclusion

It is advisable to carefully study the various options available in the market and the mortgage loan eligibility terms and conditions before proceeding. It is also good to be aware of the interest rates so you can plan your finances and future accordingly.