Know about Mortgage Loan - Interest Rates, Charges and Eligibility

If you own a property, a mortgage loan can be an excellent way to meet your personal or professional financial obligations. The secured loan requires the borrower to keep their residential or commercial property as collateral against the loan amount with no restriction on how the funds are used.While mortgage loans are highly flexible, a borrower should thoroughly compare top lenders based on factors such as interest rates, charges, and eligibility to choose the best. Take a look at some of the most critical factors that can help you select the right mortgage loan-

Like all the other types of loans, mortgage loan interest rates vary between lenders. Among the top lenders in the country, the interest rate can range between 14% to 18%. The rates can also vary for two borrowers taking mortgage loans from the same lender due to factors such as property type, location, loan amount, loan tenure, credit score, etc.The LTV or loan-to-value ratio is the maximum amount that can be availed as a mortgage loan against the cost of the property. Lenders do not offer 100% of the cost of the property as a mortgage loan. If you are keeping a residential property as collateral, the LTV can be up to 70%. In the case of commercial properties, it can be up to 60%. But the LTV can also vary between lenders.

The higher loan amount is one of the primary reasons that make mortgage loans an attractive option for borrowers. Some of the leading mortgage loan providers in India offer loans of up to Rs. 75 crores for a tenure ranging between 15 years to 20 years.For instance, if the market value of a commercial property is Rs. 100 crores, the owner can apply for a mortgage loan of up to Rs. 60 crores as per the LTV of the lender. From business expansion, working capital to purchasing machinery, there is no restriction by the lender on how the funds are used.

Lenders also offer the option to foreclose a mortgage loan. Loan foreclosure is when a borrower wants to repay the loan in full before the tenure.With most lenders, there is generally a lock-in period of 24-months within which the borrower cannot use the foreclosure facility. If a borrower wants to foreclose the loan after the lock-in period of 24-months, a foreclosure penalty is also applicable. The penalty could be up to 4% of the principal amount.However, this lock-in is only applicable to mortgage loans taken for commercial or professional reasons. Individuals who’ve taken a mortgage loan for personal reasons can also foreclose the loan within the first 24-months from taking the loan without any penalty.

Borrowers can foreclose the loan by repaying the entire loan amount to the lender before the tenure. Similarly, they also have the option to prepay the loan in parts. Up to 25% of the principal outstanding can be repaid to the lender at once in a financial year without any penalties.Borrowers can also prepay more than 25% of the principal outstanding, but a penalty of up to 4% on the excess amount will be applicable. This penalty is only applicable to mortgage loans taken for commercial purposes and not for loans taken by individuals for personal use.

As mentioned above, there are certain factors related to mortgage loans and borrowers that impact the interest rates of a mortgage loan. Here are four such factors-

• Property Type and Location The interest rate can vary based on whether the property is residential or commercial. The location of the property and the available amenities also impact the . Newer properties with the latest amenities in the heart of a city can offer lower interest rates.
• Loan Size The higher the loan amount is, the bigger is the risk of default for the lender. The risk is compensated by charging a higher interest rate to borrowers who want to borrow a substantial amount.
• Loan Tenure Mortgage loans taken for a longer tenure are riskier for the lenders than loans taken for shorter tenure, especially when the loan amount is significant. Thus, it is generally seen that loans taken for a shorter tenure come with lower interest rates.
• Credit Score The credit score determines the creditworthiness of a borrower. It is generally recommended that a borrower have a credit score of 750 or above to get better interest rates. Apart from credit score, the lender also considers the monthly income, employment type, age, and existing liabilities of the borrower.

Most top lenders in the country now allow borrowers to apply for a mortgage loan online. Alternatively, you can also visit the nearest branch office of the selected lender to initiate the application process. These are generally the steps involved in the application process-

• Submit the loan application form along with the required personal and property-related documents.
• The lender begins the verification process to assess the eligibility of the lender and the property. An executive will also visit the property for verification.
• After confirming eligibility, the lender issues a sanction letter.
• The loan disbursal process is initiated after you agree to the lending terms.

Before disbursal, the borrower is also required to submit the original property documents. The lender will return the documents once the loan is fully repaid.

While the interest rate is a critical consideration before applying for a mortgage loan, it is equally important to choose a reputable lender. A borrower’s experience starting from the application process until the loan is fully repaid is abundantly impacted by the lender they select.Look for a top lender with extensive industry experience and world-class support to ensure that the whole experience is smooth and hassle-free.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.