One of the most popular types of secured loans is a mortgage loan. A secured loan is one where the borrower can provide the lender a pledge of their property in return for money. Lenders of mortgage loans often include banks or non-banking financial institutions (NBFIs). The property is only pledged to the lender temporarily, up until the borrower pays back the borrowed funds. Mortgage loans have lower interest rates than unsecured loans because the lender receives security in exchange for lending money to a borrower, and they also feature flexible repayment terms to make payments easier to budget for. To be eligible for a mortgage loan, you must pledge only certain types of real estate. Continue reading to learn more about the different sorts of mortgage loans and the properties that qualify for them.
Property Types for Loan Against Property
Residential property
Residential property is one’s personal place of stay and residence. Residential property includes an apartment, villa, building, or even a plot of land. You can pledge a residential property to get a mortgage loan, whether self-occupied, rented, or lying vacant. As long as the ownership of the property is with you, you can mortgage residential property. Mortgaging a residential property ensures you get the lowest interest rates on the mortgage loan spectrum.
Commercial property
Commercial property is any property used for purposes other than a residence. As long as these properties get used for business activities and generating income, they qualify as commercial property. Commercial property includes office spaces, schools, gyms, retail stores, warehouses, medical centres, and the like. Borrowers can pledge rented or vacant commercial spaces as long as there is no legal dispute on ownership and title existing on the property.
Co-owned property
As the name suggests, the co-owned property is property owned by two or more persons/ co-owners. You can mortgage a property if you are a co-owner, but you will have to get the other co-owners on board and sign a No-objection Certificate (NOC) to process the loan application. Moreover, different lenders have different rules regarding the relationship that the co-owners must share. As a standard, it is easy for a wife and husband to get a mortgage loan together because marriage is considered a contractual relationship in law. The inheritance laws in India are still a bit murky, so lenders consider a joint mortgage application from a son and parent or an unmarried daughter and parent with caution.
Moreover, married daughters do not even get considered in most co-ownership loan applications, even if they are co-owners. Two brothers can apply for a loan against property and get approval only if they share the same residential address. While a brother and sister, and sister and sister combination do not even get considered, again because of the existing patriarchal succession and inheritance laws. Talk to your lender beforehand if you seek a mortgage for a co-owned property.
Industrial property
Industrial properties are properties used to manufacture, develop, and produce any goods or products. Borrowers can pledge an industrial property for a mortgage loan, but the approval varies from lender to lender. Some lenders do not consider industrial properties as collateral, while others do.
Apart from the above mentioned property types, some lenders also provide loan against car.
Types of Mortgage Loan
Now that you know the various property types for a mortgage loan, you can move to understand which mortgage loan fulfils your needs and fits your budget. Mortgage loans include:
Loan against property
A loan against property or LAP is one of the most preferred types of mortgage loans as the borrower can use the loan amount received for various personal or professional purposes. You can use the loan amount for higher or overseas education, wedding, business expansion, home renovation, infrastructure renovation/ refurbishing, medical emergencies, or even high-interest debt consolidation. Depending on the lender, you can mortgage residential, commercial, industrial, or co-owned property to get a LAP. You must deposit the original property documents (ownership/ title) with the lender until you repay the loan. The tenure of a LAP lasts up to 15 years on average.
Home loan
A home loan is another popular type of mortgage loan availed by borrowers. Home loans are catered to the borrower’s needs and budget, and the borrower can apply for small, medium, or big-sized home loans. The interest rates on home loans are competitive, and the repayment tenures are long and convenient. Home loans are of various sub-types as well, including:
- A home purchase loan where the borrower takes a loan to buy a new home
- A home improvement loan to repair, renovate, or refurbish a home
- A home construction loan to build a new home from scratch on a plot of land
A land purchase loan to buy a plot of land to build a house on it
Other home loans include:
- A home extension loan
- Joint home loan
- Balance transfer home loan
- Top-up home loan
However, home loans can only be used for house-related purposes.
Commercial purchase/ property loan
A commercial purchase loan is another loan taken to purchase property meant only for commercial purposes. These properties include offices, work complexes, shops, and the like. The interest rates for commercial property loans are also on the affordable spectrum.
Lease rental discounting loan
Leasing is a form of renting property for a long window of time. You can take a mortgage loan against leased properties. Under this loan, the rent you receive from leasing goes towards paying the loan. The tenure of the loan depends on the duration of the lease.
Second mortgage/ top-up loan
A second mortgage or top-up loan is a mortgage loan taken in addition to an existing mortgage loan. The borrower can apply for a second mortgage on the same property pledged by them for personal or professional needs. However, the lender might look deeper into the credit score, credit report, and repayment history to see if the borrower is eligible for a second mortgage loan.
Eligibility Criteria to Take A Mortgage Loan
To apply for a mortgage loan, the borrower has to tick the eligibility criteria of their lender. While the eligibility criteria of LAP might vary from lender to lender, there are some criteria shared by lenders:
- The borrower must be self-employed, a salaried individual, or a firm/ company.
- The borrower must be at least 21-25 years of age while making the mortgage loan application.
- The borrower must make a specific amount of net monthly/ annual income. (The income limit varies for salaried individuals, self-employed professionals, and firms/ companies.)
- The borrower must have continuous and stable work experience at an employer, their own practice, or their business.
- The borrower must be an Indian citizen.
Documents Required For A Mortgage Loan
- The list of documents might vary from lender to lender, but as a standard rule, you have to furnish your
- Identity proof (Aadhar card/ PAN card/ GST registration if you are a company/ firm)
- Address proof (Electricity/ utility bills, rent agreement, passport)
- Income/ employment proof (Salary slips, employment letter, income tax returns, profit/ loss statement, balance sheet)
- Bank statement proof (Salary credit statement, operative bank account statement)
- Property/ title documents
To Conclude
At Credit Success, you can apply for a mortgage loan, loan against property, home loan, and more. Irrespective of whether you have a residential, commercial, or industrial property, we, at Credit Success, have pledged to keep your best interests at heart and offer you the most competitive interest rates, high loan amounts, longer tenures, and zero hidden charges for any loan.
