What Every Property Owner Must Know About Mortgage Loans?

Banks and financial institutions offer different types of loans to help meet your expense. One such loan is a loan against property.A mortgage loan or loan against property is a secured loan where the property of the borrower is the collateral. Being a secured loan; it offers lower interest rates and a long repayment period than other types of unsecured loans such as a personal loan.

The amount sanctioned through this type of loan is based on two primary parameters:

• Self Occupied: The owner is the resident.
• Rented: The place has been rented to another person as a place of residence.
• Vacated: The property is unoccupied.

• Residential: A house, flat, apartment, bungalow, i.e. any property to function as a residence. There are a few subcategories under this type that are taken into consideration:
• Commercial: A shop, warehouse, restaurant, hotel, i.e. any property that is used for commercial purposes.
• Industrial: Factories and manufacturing plants would come under this type of property
• Vacant Plot: Any plot of empty land.

• Property Value: The market value of the property is an essential factor while deciding the amount of the loan. Different types of properties have different market value. Moreover, the value of the property would depend on the location of the property as well. There are four types of real estate property against which bank grants a mortgage loan :
• The Income of the Loan Applicant: The income of the borrower is considered carefully before sanctioning the amount. Even if the borrower has properties with high market value, an insufficient source of income will limit the amount. Subsequently, a high source of income may not fetch the desired loan amount if the borrower’s properties are not valued well in the market.

Clear Intent: The borrower must have an apparent reason for applying for the loan. Generally, personal reasons such as medical emergencies, children’s education, marriages are considered valid. Risky intent such as investing in stocks and aggressive business expansions will result in the loan being rejected. Choosing the Lender: Many loan seekers make the mistake of considering only one quote before finalising on loan. It is essential to compare different lenders before deciding what suits you best. Few factors to consider before choosing a lender:

• Valuation of properties: Each Lender will evaluate your properties’ before sanctioning an amount. Some lenders may value your property at a higher value than others.
• Loan to Value Rate: It is possible to get up to 60% of the value of your property as the loan amount. This will depend from lender to lender.
• Repayment Period: Since this type of loan is secured against collateral, the repayment period is generally long, up to 15 years.
• Access to Funds: Generally after the loan is sanctioned, the entire amount is paid to the borrower or in instalments.
• Payment Cycle: Access to flexible payment cycles that are in sync with your income is a great convenience.

Mortgage loans can be an excellent source for raising a significant amount in a short time. However, before finalising on loan, make sure you take into consideration all the factors to ensure a smooth repayment process and the security of your property.

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.