In today’s India, owning a home is more than just a dream—it’s a significant life goal for many. However, with rising property prices, most people can’t afford to buy a home with their savings alone. This is where mortgages come into play. Let’s understand what mortgages are and how they work in the Indian context.
Mortgage Meaning
A mortgage is a legal agreement where a bank or financial institution lends money to help you purchase a property. In this arrangement, the property itself serves as collateral for the loan. This means if you’re unable to repay the loan, the lender has the right to seize and sell the property to recover their money.
The term “mortgage” originates from a Law French phrase meaning “death pledge,” referring to the obligation ending when either the loan is repaid or the property is taken through foreclosure.
4 Types of Mortgages
1. Simple Mortgage:
- Borrower pledges property as security but retains title.
- If the borrower defaults, the lender can sell the property to recover dues.
2. Usufructuary Mortgage:
- Property is temporarily transferred to the lender.
- Lender earns income (rent or profits) from the property until the loan is repaid.
3. English Mortgage:
- Borrower agrees to repay within a set timeframe.
- In case of default, the lender can take full possession of the property.
4. Sub Mortgage:
- Offered to borrowers with weaker credit profiles.
- Higher interest rates compensate for increased default risk.
Read More: What is a Mortgage Deed?
Mortgage Loan Meaning
In simple terms, a mortgage loan is a loan taken against an immovable asset, such as a house or commercial property. The borrower agrees to repay the loan amount, typically in monthly installments over a set period, which includes both principal and interest payments.
The property itself acts as security for the loan, meaning that if the borrower fails to meet repayment obligations, the lender has the right to take possession of the property through a legal process known as foreclosure.
How Does a Mortgage Loan Work?
- A mortgage loan involves using property as collateral to secure financing.
- Borrowers repay in monthly installments covering both principal and interest.
- Market conditions influence mortgage rates; borrowers can refinance if rates drop.
- Reverse mortgages allow senior citizens to convert home equity into regular income.
Mortgage Loan Application Process
- Determine if a mortgage aligns with your financial goals and compare lenders’ terms.
- Check eligibility criteria and gather required documents (ID, address, income, property papers).
- Apply online or visit a branch as per your convenience.
- Approval generally takes 3–10 days, depending on eligibility and documentation accuracy.
- Respond promptly to any requests for additional information to speed up the process.
- Maintain awareness and diligence throughout the entire procedure.
Check Out: Compare Mortgage Loan Interest Rates 2025
Types of Mortgage Loans in India
1. Loan Against Property (LAP)
Use your existing residential or commercial property as collateral to secure funds. Lenders hold original property documents until repayment. Tenures typically go up to 15 years. Online EMI calculators help you plan monthly outflows.
Read More: Everything You Must Know About LAP
2. Commercial Purchase Loan
Ideal for buying shops, offices, or other commercial units. Terms, interest rates, and eligibility differ from home loans. Competitive rates and tailored repayment schedules suit business needs.
3. Lease Rental Discounting (LRD)
Convert future rental income into an upfront loan. The lender determines the loan amount based on the lease agreement and rental inflows. This enables quick access to capital without waiting for monthly rents.
4. Second Mortgage Loan (Top-Up Loan)
If you already have a home loan, a top-up loan on the same property can provide additional funds. The lender considers credit score, payment history, and the property’s current market value. Manage two EMIs—original and top-up—and expect slightly higher interest rates.
5. Reverse Mortgage
Designed for senior citizens. Instead of paying EMIs, the homeowner receives regular payouts against the property’s value. After the borrower’s death, the lender sells the property to recover the loan. Any surplus goes to the heirs.
6. Home Loan
A standard mortgage for buying, constructing, or renovating a residential property. Competitive rates, flexible tenures, and tax benefits make it a popular choice. Funds must be used exclusively for housing-related purposes.
Interest Rate Based Mortgage Loans
| Type of Mortgage | Key Features | Considerations |
|---|---|---|
| Fixed-Rate | Interest rate stays the same throughout the loan term | Predictable EMIs; may require refinancing to benefit from falling rates |
| Adjustable-Rate (ARM) | Interest rate changes periodically after a fixed initial period | Lower initial rate; rate hikes possible; financial stability needed |
| Variable-Rate (Floating-Rate) | Interest rate regularly fluctuates with market conditions | Potential savings if rates drop; risk of sudden EMI increases |
Mortgage Loan Interest Rates 2025
| Banks/ NBFCs | Rate of Interest | Maximum Loan Amount |
|---|---|---|
| SBI | 10.60% p.a. – 11.30% p.a. | Rs. 7.5 Crore |
| HDFC | 9.50% p.a. – 11.00% p.a. | 65% of the market value of the property |
| IDFC | 9.25% p.a. onwards | 50% – 70% of the market value of the property |
| Tata Capital | 14.25% p.a. onwards | Depending on the market value of the property |
| Axis Bank | 10.50% p.a. – 10.90% p.a. | Rs. 5 Crore |
| Kotak Mahindra Bank | 9.50% p.a. onwards | Rs. 5 Crore |
| Bank of India | 10.10% p.a. Per lakh | Rs. 5 Crore |
| LIC Housing Finance | 9.70% p.a. – 11.55% p.a. | Rs. 2 lakhs onwards |
| PNB Housing Finance | 9.24% p.a. – 12.75% p.a. | 70% of the market value of the property |
| ICICI Bank | 10.85% p.a. – 12.50% p.a. | 75% of the market value of the property |
How Does a Mortgage Impact Your Credit Score?
- A mortgage can strengthen your credit profile if you handle repayments responsibly.
- Timely, full EMI repayments and on-time loan closure have a positive influence.
- Avoid multiple simultaneous applications; focus on a few likely lenders to increase approval chances.
Factors to Consider Before Taking a Mortgage Loan
- Interest Rate: Compare fixed and floating rates to choose the most cost-effective option.
- Loan Tenure: Longer tenure lowers EMIs but increases total interest; shorter tenure saves costs.
- Loan-to-Value (LTV) Ratio: Check how much of the property value the lender will finance.
- EMI Affordability: Use EMI calculators to ensure repayments fit your monthly budget.
- Processing Fees & Charges: Evaluate additional costs like processing fees, legal charges, and valuation fees.
- Prepayment and Foreclosure: Confirm early repayment options and check for associated charges.
- Eligibility Criteria: Review income requirements, credit score, and necessary property documentation.
- Property Valuation: Ensure the lender’s valuation matches the property’s market price.
- Lender Reputation: Opt for a reliable lender with good customer reviews and transparent policies.
- Purpose of the Loan: Align the loan with your financial needs and long-term goals.
Home Loan vs Mortgage Loan
| Criteria | Home Loan | Mortgage Loan |
|---|---|---|
| Definition | Loan to purchase, construct, or renovate a home. | Loan secured by property for various purposes. |
| Purpose | Exclusively for housing-related expenses. | Can be used for personal, business, or other needs. |
| Property Usage | For the property being purchased or built. | Existing property is pledged as collateral. |
| Flexibility | Restricted to home-related activities. | Flexible usage, including business or education. |
| Loan-to-Value (LTV) | Higher LTV (up to 90% of property value). | Lower LTV compared to home loans. |
| Interest Rates | Lower rates due to housing focus. | Varies based on borrower profile and property type. |
| Tenure | Longer tenure (up to 30 years). | Comparatively shorter tenure. |
| Eligibility | Based on income, property value, and credit score. | Evaluated on creditworthiness and property value. |
| Examples | Buying, constructing, or renovating a home. | Funding business, education, or medical expenses. |
Conclusion
If you’re considering using your property to secure a loan and need guidance on how to proceed, whether you’re looking for the best deals and terms in the market, furthermore, Credit Dharma is here to assist you. Moreover, we offer expert advice and tailored solutions to help you make the most of your assets with confidence.
Frequently Asked Questions
Residential, commercial, or industrial properties can be pledged as collateral for a mortgage loan.
Mortgage loans typically have a tenure of up to 15 years, depending on the lender.
LTV ratio usually ranges from 50% to 90%, depending on the property value and loan type.
Fixed rates remain constant throughout the loan, while floating rates change based on market conditions.
A home loan is for purchasing or constructing a home, while a mortgage loan can be used for various purposes by pledging property.
HDFC Home Loan
SBI Home Loan
