What is Mortgage Loan? Meaning & How to Apply in India

Reasons for availing of a loan vary from person to person, and so do the factors affecting the decision-making process. If your priorities are a high loan amount, a low rate of interest, quick loan processing, or easy documentation—then consider availing a mortgage loan.

What is Mortgage Loan in India?

A mortgage loan is taken against a commercial or residential property such as land or buildings. To take this loan, you must hand over your property documents to the lending institution as security. Similar to other loan products, you must repay the principal amount along with interest over a specified time in the form of EMIs or equated monthly instalments.
 
However, handing over the custody of property documents does not mean that you cannot use the mortgaged property. You would still enjoy complete freedom to use your property as you deem fit. There are many types of mortgage loans in India but the most popular one is the loan against property or LAP.
 
If you are wondering how a mortgage loan against property can be an ideal solution and are weighing its benefits, then you must know—any financial institution considers real estate to be a highly secure asset class and that allows them to create an all-encompassing product.
 

How Does a Mortgage Loan Work?

Mortgage loans are secured loans in which the lender keeps the collateral documents until the loan is repaid in full. During the initial repayment phase of a mortgage loan, the interest component makes up a higher portion of the EMIs than the principal amount. Here, the principal component of the mortgage loan EMI increases and the interest component decreases as you progress through the repayment term. However, if you opt for a fixed interest rate, the total mortgage loan against property EMI will remain unchanged throughout the loan repayment tenure. 
 

Benefits of a Mortgage Loan Against Property

• Attractive Interest Rate

  Financial institutions offer mortgage loans at lower interest rates. As the loan is backed by high-worth land or building, the risk of lending gets reduced. As such, the mortgage loan interest rate is substantially lower when compared to other secured or unsecured loans.
   

• Flexible Tenure

  Most people avail of this loan when they need a high loan amount. Since the loan has a much longer payback period, up to 15 years, borrowers can repay it without straining their budget or savings. 
   

• High Loan Amount

  The amount of a mortgage loan is determined by the property's current market value. You can acquire a loan amount ranging from 40% to 75% of the loan-to-value (LTV) of your mortgaged property. For example, if you put up a commercial office worth Rs 80 lakh as collateral, the maximum amount you can borrow is Rs 60 lakh. In terms of amount, based on various eligibility criteria, the maximum amount you can receive in a mortgage loan is Rs 15 crore.
   

• Lower EMI

  The concept behind the mortgage and other loans is that the longer the repayment term, the lower the EMI. As a mortgage loan comes with a maximum repayment tenure of 15 years, the EMI obligations are lower. 
   

• Multipurpose Loan

  Funds obtained through a mortgage loan against property can be utilised for several purposes. If you are a business owner, you can use it for project financing, business expansion, plant or machinery purchase, and more. Salaried or other individuals can use the mortgage loan amount for medical emergencies, children's higher education, marriage or any other purpose. 
   

What are the Factors Affecting Mortgage Loan Approval in India?

If you want to apply for a mortgage loan, you should first learn about the factors that influence loan approval. If you are lacking in any of the following areas, strive to improve them before applying for the loan.
 

• Property Type

  The property you are willing to mortgage plays a crucial role in determining your mortgage loan interest rate and approval. If the building you are mortgaging is not in good condition or if the property is disputed and does not have a clear ownership title, the lender may reject your loan application. 
   

• Property Location

  When compared to properties in small towns or villages, the chances of getting a mortgage loan against property approval are higher if your property is located in a posh area of a metro city.
   

• Property Insurance

  If the borrower defaults, insurance provides an extra safety net for the lender. In case your property is not insured, the lender will turn down your mortgage loan application form. 
   

• Credit History

  Just like other loans, credit history plays a crucial role in the mortgage loan against property approval. Regardless of your property's worth, if the lender discovers that you have a default history and a tendency to consistently skip EMIs, they will reject your application.
   

• Debt-to-income Ratio

  If you are burdened with too many loans and most of your income goes into debt repayment, the lender will not consider your mortgage loan application form. Lenders usually prefer a debt-to-income ratio of less than 50%.
   

• Applicant's Profile

  When approving a mortgage loan against a property, the lender evaluates your age, income, and employment stability. If you don't have a steady income or frequently change occupation, the lender will either reject your application or charge you a higher mortgage loan interest rate.

Eligibility for Mortgage Loan Against Property

For mortgage loans, different financial institutions have established different qualifying standards. Some of the most common criteria are listed below.

• You must be an Indian national with a minimum and maximum age of 25 years and 75 years, respectively.
• If you are self-employed or a business owner, you should have been in your existing business for at least three years.
• You must have a consistent and stable flow of income. 
• If you retire or reach the age of 60 years, your repayment period will not be extended in any case.

Documents Required for Mortgage Loans

When applying for a mortgage loan against property you must furnish certain documents needed to evaluate your application. Some of these documents are: 

• Mandatory Documents

  Duly filed mortgage loan application form along with a copy of your PAN Card. 

• KYC Proof

  You need to furnish your identity and address proof for KYC purposes. Some of the accepted KYC documents are: Aadhaar Card/Driver's Licence/ Utility Bill/ Voter ID Card/ Lease or Rent Agreement. 

• Business Existence Proof

  Sales Tax/ Service Tax/ Excise/VAT Registration/ Trade Licence/ Partnership Deed/ Certificate of Practice.

• Income Proof

  Last three year’s ITR statement, balance sheet, P&L account, and last six months’ bank account statement.

How to Apply for Mortgage Loans?

 
You can apply for a mortgage loan online on the preferred lender’s website or in person by visiting their branch office. In case you wish to apply for a mortgage loan against property with Hero FinCorp, here’s how you can do it:

• Visit Hero FinCorp's mortgage loan against property webpage.
• Check your eligibility from the eligibility criteria section available on the website.
• On the mortgage loan page, check for the mandatory documents required for a mortgage loan.
• Click the 'Apply now' tab and fill in the required information, and submit the online form.
• Once Hero FinCorp is satisfied with your details, their executives will get in touch with you.
• You may also apply for a mortgage loan by visiting the nearest Hero FinCorp branch or outlet. 

Things to avoid when applying for Mortgage Financing

 
When applying for a mortgage loan, it is crucial to be aware of the potential pitfalls that could hurt your chances of getting approved or result in less favourable terms. Here are some things to avoid:

• Avoid large purchases

  Avoid making large purchases, such as a new car, before or during the mortgage application process. This can increase your debt-to-income ratio and affect your credit score, which could impact your ability to qualify for a loan.

• Avoid job switch

  Lenders like to see a stable employment history and a consistent income when evaluating mortgage applications. Changing jobs or having a fluctuating income can make you appear less reliable to lenders, which could hurt your chances of getting approved.

• Failing to provide documents

  Be sure to provide all required documentation, such as tax returns, pay stubs, and bank statements, in a timely manner. Failing to do so can delay the mortgage loan process in India and may even result in a denial of your application.

• Ignoring your credit score

  Your credit score is one of the most important factors that lenders consider when evaluating your mortgage application. Ignoring your credit score or failing to take steps to improve it before applying for a loan could result in less favourable terms or even a denial of your application.

• Applying for other credit

  Avoid applying for other types of credit, such as credit cards or personal loans, while you are in the process of applying for a mortgage loan. This may increase the number of hard inquiries that lenders make with credit bureaus in order to gather information about your financial behaviour.
   

To Conclude

 
A mortgage loan against property can help you turn your dreams into reality. If your funding needs are high and you are not in a position to repay the loan in a year or two, a mortgage loan will be perfect for you. However, before taking this loan, keep in mind that mortgage loans put your property at risk. You could lose your property if you default on your loan. 
 
Disclaimer: This post was first published on 30th June 2021 and has been updated for the latest information, freshness and accuracy.