How
Does Mortgage LOAN Work for Real Estate in India?
Purchasing your
own home is a huge investment, and takes a financial toll on your budget. To
minimize the stress many financial institutions and banks offer loan against
property. The whole mortgage loan process is designed for the benefit of the
customers.
Considering the
benefits it has towards the customer, many lenders make it easy to apply for
such loans with minimum documentation and straight forward application process.
But before we
start discussing mortgage loans, let us first address explain the difference
between home loan and mortgage.
Yes, many times
we use this term interchangeably without realizing these two terms are
different altogether
What is the Difference Between Home Loan and Mortgage
Loan?
● To utilize a loan from the market, you need to provide some kind
of collateral as security. This is true for all kinds of mortgage available. So
in other words, a home loan is a type of mortgage loan. While you can use other
assets as security in a home loan, mortgage works specifically by burrowing your
property as security. But most home loans in India are mortgage loans and hence
the confusion. Bank can seize your property in case you fail to repay the loan.
● Home loan has a pre-set nature - means you can use the allocated
money only for the purchase of the property. While the mortgage money can be
used for other purposes,
● In the case of home loans, the payment is done directly into the
seller’s account to make sure the funds are properly utilized. In the case of
mortgage loans, there is freedom to use the money anywhere they chose and is
transferred in borrower’s account.
● The interest rates you pay on home loans is relatively less than
a mortgage loan.
How Do Mortgage Loans Work?
● The mortgage installments comprise of the principal amount,
mortgage rate of interest, insurance charges and tax charges.
● A huge amount of capital can be raised through mortgage loans.
However, the borrower must only withdraw the amount they are capable of
returning.
● The property details and the time of transaction must be
notified to the lender.
● The closing charges have been withdrawn by the RBI. SO, before
signing any document please read the instructions, terms and condition
carefully.
● The borrower must pay the initial 15% of the amount before commencing
the project.
Types of Mortgage Loans
Simple Mortgage Loan -
In this kind of
Loan, the lender has the right to sell the property in case the borrower fails
to repay the loan. Here the lender doesn't become the owner of the property and
the rights and the rights remain with the borrower.
Mortgage by the conditional sale -
In this type of
mortgage, the mortgagor has the right to sell the property in case the mortgage
remains unpaid by the mutually decided date or the sale has no considerable
value or the buyer transfer the property to the seller.
Usufructuary Mortgage -
● The complete possession of property is delivered to the borrower
● The lender is to get rent paid instead of interest or principal
amount or both
● There is no personal liability incurred by the borrower
● The lender cannot sue for sale
English Mortgage -
● The mortgagor must compulsory bind themselves to repay the
amount on a certain date.
● In case of failure, the mortgaged property should be assigned to
the lender
● The borrower will recover the property once the payment is made
Mortgage by
Deposit of Title Deeds -
In this kind of
loan, the transfer of property is delivered to an agent for safeguarding. And
this kind of mortgage does not require registration and is at par with any
other legal mortgage.
Anomalous Mortgage -
This loan is a
mix and match of different terms and conditions mutually decided by the
borrower and the lender
Reverse Mortgage -
As the name
indicates, the proceedings of the loan happen in reverse mode. Here the lender
pays the amount in monthly installments.
Eligibility to Avail a Mortgage Loan in India
The economy of
India is booming and infrastructure development is always a proof of developing
nation. With government pushing the real estate sector to new height, the
eligibility criteria are kept to bare minimum. Premium residential projects in Pune,
Mumbai, Delhi, and Bangalore are witnessing an all-time high demand and hence
the eligibility criteria are kept minimum, which is as follows:
For Salaried Individual
● The age criteria should fall between 33 to 58 years
● You should be a salaried individual in a MNC, private or public
sector
● You should possess an Indian nationality
For Self-Employed Individual
● The age criteria should fall between 25 to 70 years
● You should be a self-employed individual with regular flow of
income
● You should possess an
Indian nationality
Documents Required in Mortgage Loan
For Salaried individuals
● Latest Salary Slips with forms indicating the tax deducted
● Completely filled application form with attached photographs
● Proof of Identity
● Residence proof
● Copy of the documents of the property to be mortgaged
● I.T. returns
For Self-employed individuals
● Completely filled application form with attached photographs
● Identity proof
● Residence proof
● Copy of the documents of the property to be mortgaged
● Proof of existing business
● Bank statements validating the latest income source
● Profit and loss computation of previous months
● I.T. returns of last 3 years
Advantages of Availing a Mortgage Loan
● A mortgage loan helps in increasing the buying capacity of an
individual
● If anything goes wrong, the lender has the right to sell the property
and hence the rates of interest are low on mortgage
● The repayment amount is divided into easily payable monthly
installments
● A good credit score is
reported if you pay your mortgage loan on scheduled time. This score will help
you avail different loans at low rate of interest
● Availing mortgage loan qualify you for many tax benefits
Disadvantages of Mortgage Loan
● Mortgage loan accompanies rate of interest and hence in the end
you will be paying principal amount plus the rate of interest
● Hidden charges like legal fees, insurance fees, etc. will come
upon you as an extra burden when you actually start repaying your mortgage.
● Unlike the fixed rate of interest, the rate of interest changes
periodically depending on market conditions
Conclusion
I hope this
article clears the basics of mortgage loan. The real estate sector is booming
in India. It is always be on the beneficiary side to get acquainted with all
the terms and processes related to real estate.
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