Mortgage loans are the most popular credit option as it offers sizable loan principal at affordable mortgage loan interest rates against an immovable asset pledged as collateral. The major advantage of a mortgage loan is that borrowers can make optimum use of their property without bequeathing property ownership.Get pre-approved to get an idea of what you can spend on a used car. If you find other car finance after you buy, use our 3-day payoff program.
In this regard, prospective debtors must know the different types of mortgage loans available in the market and which interest rate to opt for as per their monetary need to make an apprised decision.
Different types of mortgage loans available
Here are the different types of mortgage loans that cater to the diverse financial needs of an individual.
- Loan against property (LAP): A loan against property is a popular loan option offered against a high-value property mortgaged as collateral. Borrowers can use the sanctioned amount to meet any financial expenses as there are no end-use restrictions. Additionally, the loan against property interest rates are also affordable compared to their unsecured counterparts.
- Home loan: This is another sought after loan option as it offers a sizable loan amount at a competitive interest rate for an extended loan tenor. However, borrowers can use the fund only to construct or renovate their houses. Here, the property to be constructed or purchased is kept as collateral.
- Second mortgage loan: Second-mortgage loan is taken on a property that is already under a mortgage. For instance, an individual has taken a home loan but is in need of additional funds, he/she can apply for a second mortgage loan on that same property. However, two prerequisites here are an excellent repayment history and fulfilling the monthly income parameters set by a lender.
- Reverse mortgage: Reverse mortgage loan is specially introduced for senior citizens. In this loan type, individuals are not required to pay the loan amount, unlike a traditional mortgage loan type. It allows property owners to convert their assets into cash income. After a borrower’s demise, lenders have full authority to sell the property and recover the funds, in case his/her next to kin is not willing to pay off the loan amount.
- Lease rental discounting: Mortgage loans can also be opted against a leased property. Lenders determine loan amount by considering the monthly rent amount as EMI. Repayment tenor and loan principal depends on the timeframe for which a property is kept leased.
Different types of mortgage loan interest rates
Here are the types of property loan interest rate that determines the affordability of the borrowing and impacts repayment planning. When borrowing funds, borrowers have to choose between two types of interest rates, which are:
- Fixed interest rate: Fixed interest rate implies that the lending rate remains fixed throughout the repayment tenor. Borrowers who want certainty can opt for a fixed interest rate as the monthly instalments and repayment tenor can be evaluated beforehand, which helps with the financial planning.
- Floating interest rate: The floating interest rate is subjected to change as per the decision of RBI, market conditions, fluctuations in the base rate. A floating interest rate is generally lower than fixed interest rates.
Furthermore, if borrowers avail of a mortgage loan with floating interest rates, they are not required to bear any prepayment charges.
Benefits of availing mortgage loan
Mortgage loans have gained immense popularity due to the innumerable benefits that it bestows to customers.
- As the loan amount is sanctioned against a high-value asset, borrowers receive substantial quantum.
- Being a secured credit instrument, the mortgage loan rates are comparatively affordable, which reduces the total borrowing cost.
- Borrowers can use the sanctioned amount to meet any array of personal or business expenses.
- Owing to its comparatively longer repayment tenor, the EMIs remain affordable that reduces one’s financial stress.
Another reason attributing to the demand for mortgage loans is the availability of pre-approved offers extended by leading financial institutions on financial products like loan against property, home loans, etc. These offers expedite the lending process and reduce processing time. Individuals can check their pre-approved offers by entering their name and contact details.
To sum up, a mortgage loan can prove to be the most cost-effective borrowing option, given that the borrowers opt for affordable mortgage loan interest rates and choose a mortgage loan type that suits their financial requirements.