There are certain times in life when we need funds urgently. In such situations, being a homeowner proves to be a boon as you can simply mortgage your home in return for the required funds. The greatest advantage of a mortgage loan is that you do not have to bequeath your ownership of the property and can get the loan at very low interest rates as opposed to most other loans. Here’s everything you need to know about mortgage loans.
What is a mortgage loan?
A mortgage loan is simply a loan taken out against a property that you own. The property in question could be you house, a shop, or even a non-agricultural piece of land. Mortgage loans are offered by banks and non-banking finance companies. The lender provides you the principal loan amount and charges you an interest on it. You can repay the loan in affordable monthly instalments. Your property serves as your collateral and it stays in possession of the lender until the loan is repaid in full. As such, the lender has a legal claim over the property for the tenure of the loan, and if the borrower defaults in paying off the loan, the lender has the right to seize it and auction it off.
Types of interest rates on mortgage loans
You can pay off your mortgage loan, either by opting for a fixed interest rate or a floating interest rate. Let’s understand the meaning of the two.
Fixed interest rate: As the name suggests, a fixed interest rate remains the same for the entire loan tenure. You may be allowed to opt for a fixed interest rate if you opt for shorter tenures. In case you are looking for a longer tenure mortgage loan, you may not be able to avail a fixed interest rate.
Floating interest rate: The interest rates are adjusted according to the prevailing market rates. You cannot predict the rate of interest but can get an idea of the current interest rate on the lender’s website. This is a rate of interest than can change periodically and it is directly linked to the Marginal Cost of Funds based Lending Rate or MCLR.
Features of a mortgage loan
Now that we know what is meant by a mortgage loan, and the interest rates associated with them, let’s take a look at its important features.
Reasons to take out a mortgage loan
A mortgage loan can be taken for many reasons like
Benefits of mortgage loan
Having covered what is a mortgage loan and its important features, let us now take a look at the benefits of taking this loan.
There is no restriction on how you use the money