A mortgage loan is a secured loan where an immovable asset like a house or a prime property is pledged as collateral to the lender. Mortgage loans are offered by banks and non-banking institutions. The borrower has to pay interest on the amount given and repay the principal and interest within the stipulated time. The collateral shall remain in the possession of the lender during the tenure of the mortgage and will be returned to the borrower once the dues are fully settled. In case the borrower defaults on repayment, it is within the lender’s right to auction off the property.
Mortgage Loan Rates
The rate of interest on a mortgage loan may be Fixed or Floating. In the case of fixed interest, the borrower has to continue paying the same interest rate, which he had agreed upon at the time of borrowing the money, till the entire amount is repaid. On the contrary, the floating interest rates will vary based on market fluctuations. It may increase or decrease from what was agreed upon at the time of borrowing, according to the guidelines provided by Marginal Cost of Funds based Lending Rate (MCLR) which decides the minimum mortgage loan rate below which banks are not allowed to lend.
Benefits of Loan Against Property
Also known as a loan against property, a mortgage loan is a secured loan that generally has a lower interest rate than unsecured loans like personal loans. And unlike personal loans or home loans, there is no insistence on the specific purpose for which the loan amount should be used. The borrower can use it for personal or business purposes. Mortgage loans can be taken against immovable property of high value so that the applicant gets access to larger amounts of money. Also, since the loan terms are quite flexible, the borrower can opt for a tenure that would allow them to pay EMIs comfortably. Mortgage loans also give the borrower tax benefits and a balance transfer facility for transferring the balance amount to another lender at a cheaper rate.
Eligibility for Mortgage Loan
Like other loans, borrowers should meet some eligibility criteria in case they want to avail themselves of mortgage loans. An applicant for a mortgage loan should be at least 18 years of age. The upper age limit may vary among different lending institutions but no one generally gives a loan to someone more than 70 years of age. The value of the loan can be up to 75% of the value of the property and the amount can be up to ₹25 crores. The property can be industrial, commercial, or residential. The loan applicant must have a credit score of at least 750 and a monthly income of at least ₹12,000, with a net annual income not below ₹1.5 lakhs.
How to use the Mortgage Loan Calculator to decide the EMI?
Ensuring that the EMI to be repaid every month is within one’s affordable limit is extremely important when taking a loan. So, decision-making becomes very easy when there is an online tool to check the amount the borrower has to repay every month. You can make use of a mortgage loan calculator online to quickly make predictions.
EMI calculators work on this formula –
EMI = [ P x R x (1+R)^N ] / [ (1+R)^N – 1 ] where P is the loan amount, R is the monthly rate of interest, and N is the loan tenure calculated in months.
While the manual calculation of this will take time, an online mortgage calculator does this in seconds. This way, the borrower can calculate the exact EMI by just inputting the loan amount, interest rate, and tenure till they get a comfortable EMI amount that they can afford.
Before choosing the lender, the applicant should also look at other expenses like processing fees, GST, etc. Those offering lower interest rates may sometimes have a higher processing fees.