Know the Basics of Mortgage Loan: A Comprehensive Guide

by Test My Loan Home Loan Provider

Are you ready to take the first step towards financial security and build a life for yourself and your loved ones? Have you dreamed of owning a property in India but are unsure about the mortgage loan process? Do you want to be empowered with the essential knowledge of home mortgage loans in India, so that you can make informed decisions throughout the process?

If you answered yes to any of these questions, then congratulations! You are in the right place. In this guide, we will equip you with everything you need to know about securing a mortgage loan for your dream home in India. So, let's get started!

Understanding Mortgage Loans

A mortgage loan, also known as a home loan, is a secured loan offered by banks and NBFCs (Non-Banking Financial Companies) to individuals for purchasing a residential property. The property itself serves as collateral for the loan. Here's how it works:

● You borrow a specific amount of money from the lender (bank or NBFC) at a predetermined interest rate.

● You repay the loan amount and interest over a fixed tenure, typically 15 to 30 years in India.

● The lender holds the legal title to the property until the loan is fully repaid. Once you make your final payment, you will own the property.

3 Benefits of Mortgage Loans

1. Leveraging Power

A home mortgage loan allows you to purchase a property with a substantial down payment, typically ranging from 15% to 20% of the property value. This significantly reduces the upfront financial burden and makes homeownership more accessible.

2. Spreading the Cost

Repaying the loan amount over a long tenure makes the monthly payments (EMIs - Equated Monthly Installments) more manageable, allowing you to comfortably budget for your homeownership dreams.

3. Tax Benefits

In India, the home loan borrower can avail of tax benefits on the principal amount repaid and the interest paid on the loan. This can provide significant tax savings throughout the loan tenure.

5 Types of Mortgage Loans in India

1. Home Purchase Loan

This is the most common type of mortgage loan used to finance the purchase of a new residential property, including apartments, villas, or independent houses.

2. Loan for Land Purchase

This loan can be availed to purchase a plot of land for future construction of a residential property.

3. Home Construction Loan

This loan is specifically designed to finance the construction of a house on a plot you already own.

4. Balance Transfer Loan

This allows you to transfer your existing home loan from a lender with a higher interest rate to a new lender offering a more competitive rate. This can result in significant savings on your EMIs and overall loan interest payout.

5. Top-Up Loan

This loan allows you to borrow an additional amount against the equity you've built in your property. The funds can be used for various purposes, such as home renovation, debt consolidation, or financing children's education.

4 Major Factors Affecting Your Mortgage Loan Eligibility

1. Credit Score

A good credit score (generally above 750) indicates your financial discipline and repayment history. It significantly improves your chances of securing a loan with a favorable interest rate.

2. Income and Employment Stability

Lenders assess your income stability and repayment capacity based on your salary slips, income tax returns, and employment history.

3. Down Payment

A higher down payment lowers the loan amount you need to borrow, making you a less risky borrower in the lender's eyes. This can translate into a better interest rate.

4. Property Value and Location

The property's value and location often determine the loan amount you can qualify for.

3 Key Considerations Before Applying for a Mortgage Loan

1. Do your research

Compare interest rates, processing fees, and other loan terms offered by different lenders. Choose the lender that offers the most competitive package that aligns with your financial needs.

2. Calculate your affordability

Factor in the EMIs and other associated costs, such as property taxes, maintenance charges, and insurance. Ensure your monthly budget can comfortably accommodate these expenses.

3. Home loan pre-approval is key

Getting a home loan pre-approval helps you understand your borrowing capacity and provides a strong bargaining chip when negotiating with property sellers.

Additional Tips for Indian Home Loan Borrowers

● Negotiate Interest Rates

Don't hesitate to negotiate interest rates with different lenders. A slight reduction in the interest rate can lead to significant savings over the loan tenure.

● Explore Government Schemes

The Indian government offers various housing subsidy schemes for specific income groups. Explore these options to potentially reduce your loan burden.

● Consider Home Loan Protection Insurance

This insurance safeguards your loved ones in case of unforeseen circumstances like death or disability during the loan tenure.

Understanding home mortgage loans empowers you to make informed decisions throughout the home-ownership journey. By carefully considering the factors mentioned above and conducting thorough research, you can secure a mortgage loan that aligns with your financial goals and brings you closer to your dream home in India.

Remember, this guide serves as a starting point. It's advisable to consult with a financial advisor or loan specialist to discuss your specific circumstances and receive

Also, Read this: How Does Lenders Decide Home Loan Interest Rate?