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Mortgage loans are loans backed by an immovable asset, such as a residential or commercial property or land. In the case of a mortgage loan, the lender and the borrower enter into an agreement that gives the lender a complete legal right to sell the pledged collateral or property to recover losses if the borrower defaults on the loan. 

Both home loans and property loans are types of mortgage loans. However, in India, mortgage loan meaning implies property loans or loan against property. 

Property loans are loans availed of by pledging a residential or commercial property or a piece of land as collateral. 

The primary difference between property loans and home loans is that while the former could be backed by both residential or commercial properties or land, the latter is availed of by pledging a residential property as security. 

Further, property loans are availed of against a property that the borrower already owns. On the other hand, a home loan is secured by the property bought with the loan money.  

In this article, we talk about mortgage loans or loans against property in detail and discuss the various features and benefits of these loans. 

Mortgage Loan: Benefits 

Here are some of the key reasons that make mortgage loans a very popular financing option among Indians. 

Low Interest Rates 

Mortgage loans are backed by security. Borrowers are required to pledge a property they own as collateral for the loan. In case of a loan default, the lender can sell the property and recover losses. 

Thus, the risk for the lenders is quite low in the case of such loans. Therefore, lenders charge a low interest rate on property loans. To qualify for the mortgage loan lowest interest rates, maintain a CIBIL score above 750, opt for a low LTV ratio, pledge high-quality collateral and show income and job stability. 

Substantial Loan Amount 

Under mortgage loans or LAP, the LTV ratio can go as high as 75%. Borrowers can avail themselves of a loan amount as high as Rs.5 Crore, provided they pledge collateral that supports such a high loan value and meets all the other qualifying criteria. No other loan gives borrowers access to such a high loan amount. 

Long Repayment Tenor

These loans come with a long repayment tenor. Depending on their repayment capacity and the lender they have chosen, borrowers can choose to opt for a repayment tenor between 15 to 20 years. This flexibility to choose one’s loan repayment tenor allows borrowers to repay their loan comfortably and without feeling burdened. 

No End-Use Restrictions 

Mortgage loan funds come with no end-use restrictions. Borrowers can spend the funds availed of however they like. This further makes a mortgage loan an ideal funding option to take care of one’s diverse personal and professional needs. 

Income Tax Benefit 

If the borrower uses the loan money to buy another property or take care of business expenses, they automatically becomes eligible for mortgage loan tax benefits under Section 24b and Section 37(1). These benefits can considerably reduce the borrower’s tax liability. 

Let us now look at how mortgage loans work. 

Mortgage Loans: How Do They Work? 

When a borrower decides to avail themselves of a loan against property or a property loan, they essentially give their lender the legal right to sell the pledged property and recover losses in case the borrower defaults on the loan. 

The lender cannot sell the property if the borrower misses only an EMI or two. However, if one misses EMI payments for over six months or more, the lender can take action. If the borrower decides to sell the pledged collateral for recovery of losses, they can keep only the amount that is due to them. 

They must return the remaining amount to the borrower. Once the loan is sanctioned, the lender places a lien on the property, which forbids the property owner or the loan borrower from selling the property until they have cleared the loan entirely. 

Once the borrower clears the entire loan, the lender removes the lien and the property gets transferred back in the name of the loan borrower. 

Final Words

Mortgage loans are a safe and smart financing solution. However, since these loans require borrowers to pledge a property they own as collateral, one must avail of these loans only when they are financially ready and can comfortably afford to squeeze the property loan EMIs into their monthly budget. 

Borrowers must also try their best to avail themselves of the best property loan interest rate they can get and set aside an emergency fund to help them navigate financially tough times. 

Further, they must read about the mortgage loan document requirements and keep all the documents ready to experience an entirely hassle-free loan application process and avail of the funds quickly and without any difficulty.