The Indian housing market is flourishing year on year. The availability of all home loans has made it easy for the common man to own their abode with the least possible savings. We all know that procuring a property is easy with loans. Make a down payment of some token amount, and the rest may be paid in installments. While most of us are familiar with home loans, there is another lending category: Mortgage Loans. The core concept of lending and processes remain the same; however, mortgage loans are usually big-ticket loans (high amount borrowing) with generally higher Mortgage loan interest rates which vary from bank to bank (or NBFCs)
What is a Mortgage loan?
The term mortgage loan applies to lending where you secure funds by pledging your property. This means that you may avail of a mortgage loan by keeping an owned property as collateral to a financial institution. Mortgage loans are secured loans.
Generally, it has been observed that the Mortgage loan interest rates range from 8.15% to 11.80% p.a. The amount of funding could be up to 60% of the registered value of the property. You can get as high a mortgage loan as 10 crores. The repayment terms vary on case to case basis.
Must Read: Types of Home Loans in India
Who is eligible for Mortgage Loan?
The eligibility criteria vary from institution to institution; the following are some general factors:
- Salaried or self-employed, both are eligible,
- Age 21 years and above
- Income-proof
- Gross Annual/ monthly income
- Existing liabilities
- Property valuation to determine the lending amount
- Number of dependents
How to Apply for a Mortgage Loan?
You can apply for a mortgage loan through the bank’s official website or by visiting the nearest branch.
Factors that Affect Mortgage Loan Interest Rate
The Type of Property Type and its Location
Mortgage loan interest rates vary for residential and commercial properties. Besides that, it is the location too which influences the interest rates too. Generally, interest rates are lower when a property with modern amenities is located in a prominent area, as its resale value will be higher. This makes it easier for the lender to estimate the recovery amount if the borrower defaults. Also, if the property is relatively new, the Mortgage loan interest rates will be lower. The old property will fetch higher rates.
- Credit Score of the borrower
The mortgage amount is decided after assessing the credit profile of the borrower. The following pointers determine the credit profile.
Credit Score: This includes the income of the borrower, type of employment (govt., Private, Business), age (more the age, higher the rate), Credit Utilization Ratio (the percentage of a borrower’s total available credit that is currently being used).
FOIR or Fixed Obligations to Income Ratio is also assessed. It is a popular parameter that banks use to calculate the loan eligibility of the applicant. It is also referred to as the debt-to-income ratio. The lending institutions carry a background check to ascertain credit repayment history, assets, financial liabilities, and other components of the borrower that may affect their loan repayment ability.
Mortgage Loan Terminology
Loan term
The mortgage loan interest rates are also determined by the loan term. It is generally long-term.
Fixed-Rate Mortgages
With Fixed rate mortgages, the interest rate remains the same for the entire term of the loan.
Adjustable-Rate Mortgage (ARM)
With Adjustable rate mortgages, the interest rate is fixed for an initial term, after which it can change periodically based on prevailing interest rates. The initial interest rate is often a below-market rate, making the loan more affordable in the short term but rising substantially later. These are also called Floating Mortgages.
ARMs typically have limits, or caps, on how much the interest rate can be increased each time.
APR (annual percentage rate)
APR represents the yearly interest charged on loans
What Is the Loan-to-Value (LTV) Ratio?
Loan-to-value ratio (LTV) is a parameter that the lending institution assesses before approving a mortgage. Typically, loan assessments with high LTV ratios are considered higher-risk loans.
How to Calculate the Loan-to-Value Ratio
Homebuyers can easily calculate the LTV ratio of a home on their own.
LTV ratio=MA/APV
MA: Mortgage Amount, APV: Appraised Property Value
That was a handy guide to Mortgage loans, Mortgage Loan interest rates, and the factors that affect them. If you’ve been thinking of procuring one, check out Naiknavare Developers, a renowned name in the real estate industry. With their commitment to quality construction, innovative designs, and customer satisfaction, Naiknavare Developers offers a wide range of properties that are perfect for investment or your dream home. Explore their projects and make an informed decision to secure a mortgage loan that aligns with your financial goals and aspirations.