Diverse Choices: Understanding Types of Mortgage Loans

If you are planning to avail yourself of a mortgage loan, you must familiarize yourself with the different types of mortgage loans. Read more to know about the diverse choices you have. 

Understanding the Different Types of Mortgage Loans

1. Loans Against Property: Loans against property are the most common type of mortgage loans. In the case of these types of loans, the borrower avails of a loan against a residential or commercial property they own. The papers of the property stay with the lender until the end of the loan tenor. If the borrower defaults on loan repayment, the lender can sell the pledged property to recover losses. If the borrower repays their loan within the agreed time, the lender relinquishes all rights over the property and the property gets transferred back into the borrower's name.

2. Lease Rental Discounting: Lease rental discounting refers to the process of taking a loan against a leased property. The value of the loan is decided based on the value of the leased property and the monthly rent. The rent that one gets, gets converted into EMIs. The loan tenor varies depending on the number of years for which the property has been leased. 

3. Commercial Purchase Loan: In the case of a commercial purchase loan, one avails of a loan to purchase a commercial property. The money availed of under these loans can only be used to buy a commercial property and the property bought with the loan money serves as collateral.

4. Reverse Mortgage Loan: The concept of reverse mortgage loans was introduced in India in 2007. In these kinds of loans, a senior citizen can avail of a loan against a property they own. The catch here is that the senior citizen does not have to pay back the loan. The loan is paid only if the borrower sells the property or passes away. In case the borrower passes away, the lender sells the property for loan recovery and the remaining amount is paid to the legal heirs of the borrower. 

5. Home Loans: Home loans are also a type of mortgage loan. In the case of the home loans, the property bought with the loan money serves as collateral and the property gets completely transferred into the borrower's name only after they have completely repaid the loan. The tenor for home loans is quite long. Most lenders easily give borrowers 25 to 30 years to repay their home loans. Further, home loans are also the cheapest of all loans. 

6. Second Mortgage Loans: These days, borrowers can avail of a second loan on a property against which they have already taken a loan. These kind of loans are called top-up loans and offer many benefits. To start with, the interest rate on these loans is not too high. The tenor is long and paperwork requirements are low. However, one can avail of a top-up loan on an existing loan only if one has an excellent income and credit profile.

So, these are the different types of mortgage loans offered by lenders and NBFCs in India. Before you proceed with your loan application, you must understand the pros and cons of each of the loan types and choose the right one for you.