In today’s financial market, you are spoilt for choice when it comes to borrowing instruments. Lenders are now offering customised retail loans for specific and general expenses, however very few of these compare to a mortgage. This is because a mortgage loan or a loan against property generally offers a much higher sanction and has better loan terms such the interest rates as well as related fees and charges. Further, a mortgage is a secured offering, which means you are required to pledge an asset as security in order to acquire funding. This makes it an easy loan to qualify for and avail. Another important pointer to note is that a loan against property has a lengthy tenor that usually spans over 20-30 years. This makes repayment convenient due to smaller EMIs but involves a lengthy financial commitment.
Now that you have a brief overview of what a mortgage loan is, the next step is to learn all you can about this financial offering. Armed with the right information, you can leverage your assets in a favourable manner, thus enjoying value in your undertaking. To that end, here’s all you need to know about a loan against property or mortgage.
What are different types of mortgage loans?
Before you mortgage your property, you should be aware that there are 2 types of mortgage loans. They are the term loan and the overdraft loan, both serving different purposes but gated by the requirement of immovable property. A term loan is the standard loan against property wherein you are approved for a sanction based on several eligibility factors in combination with the valuation of the property. Here, the approved amount is disbursed to you entirely once the loan is finalized.
With an overdraft loan, the key difference is in the way that the loan is disbursed. Here, the amount is disbursed to you on a need basis, allowing you to borrow flexibly. The benefit here is that interest is charged only on the amount withdrawn rather than the entire approved sanction. However, with this type of mortgage loan, lenders usually impose higher interest rates, usually 0.5% higher than the term counterpart.
What are the general eligibility criteria to qualify for a mortgage loan?
With a loan against property, the eligibility criteria will generally vary with lender. Ideally, you should scout for a lender with lenient terms as it makes the entire process quicker and simpler. However, in most cases, here are terms you should be prepared to meet.
- Applicants must be between the ages of 18 and 70 years
- Applicants must meet the monthly or annual income requirements
- Applicants must have work experience of at least 3 years, if salaried
- Applicants must have a business vintage of at least 5 years, if self-employed
- Applicants must have a CIBIL score of at least 650
What types of property can be pledged as an asset?
When borrowing via a mortgage loan, you should note that only certain types of property qualify. As a borrower, these are properties you can leverage to attain funding:
- Commercial property
- Residential property
- Self-occupied property
- Industrial property
What documents do you need to submit when availing a loan against property?
Firstly, you need to submit documents to prove your mortgage loan eligibility. These are the basic KYC documentation you’ll require to avail any financial offerings. Following that, lenders require property-specific documents as well. Refer to this list to know more.
- Registered sale deed or lease deed
- Latest house tax receipt
- Past sale deeds chain
- Encumbrance certificate
Borrowing via a secured funding option like a mortgage is a good idea when handling big-ticket expenses. Managing financial priorities like paying for a child’s overseas education, funding renovation, expanding the business or dealing with a medical emergency are usually the best reasons to opt for this route. This is simply because repaying a mortgage is long-term commitment and should only be resorted to when absolutely necessary. A good way to borrow smartly is to consider the total cost, including interest, and then assess whether the expense is worth it.