February 25, 2024
Mortgage Loan

There are some phases in an individual’s life when we are in need of funds urgently. In such a scenario, being a homeowner proves as a boon as you can easily mortgage your house in return for much-needed funds. The largest benefit of a mortgage loan is that you don’t have to bequeath the property ownership and avail of property loan at significantly low-interest rates at the same time, as opposed to loans of other kinds. Here is all that you need to know about a mortgage loan.


What Is a Mortgage Loan?


A mortgage loan is defined as a loan borrowed against a property you possess. The property that is in question could be your house, a shop you own, or a non-agricultural land. Mortgage loans are offered by financial lenders like banks and other non-banking finance firms. 


The lender offers the principal loan amount and levies an interest on it. You can repay your loan in affordable monthly installments. Your property serves as the collateral and it is in possession of the financial lender until the loan is paid fully. As such, the financial lender has a legal claim over the property for the tenor of the loan, and if the loan borrower defaults in paying off a housing loan, the lender has the right to seize and then auction it off.


Types of Mortgage Loans Interest Rates


You can pay off the mortgage loan, either by selecting a fixed interest or a floating interest rate. Let us understand the meaning of the two.


Fixed Interest Rate: As the term suggests, a fixed interest loan rate remains the same for the whole loan tenor.You may be permitted to opt for a fixed interest rate if you opt for shorter tenors. In case you have been looking for a relatively longer tenor mortgage loan, you may not be able to avail a fixed loan interest rate.


Floating Interest Rate: The loan interest rates are adjusted per the existing market rates. You cannot preempt the rate of loan interest but can get a fair idea of the current interest rate on the lender’s official website. This is a rate of interest that can alter periodically and it is directly linked to the Marginal Cost of Funds Lending Rate better known as the MCLR.


Features of a Mortgage Loan


Now that we know what is indicated as a mortgage loan, and the interest rates associated with these, let us take a look at its key features.


  • Not all kinds of properties, real estate or others are accepted by lenders
  • Lenders generally accept properties that are constructed fully, for example, your house or a commercial shop
  • The property must possess marketable value and has to be a freehold property i.e., one that offers the property owner the legal right to transfer the property ownership
  • Since the lender provides the loan amount by taking the property as collateral, a loan against the property is considered to be a secured type of loan
  • Mortgage loans are available for longer tenors lasting up to 30 years and can be repaid in affordable payments monthly or EMIs
  • A mortgage loan can be personalized to suit your needs


Reasons for Taking out a Mortgage Loan:


A mortgage loan can be availed of for several reasons:


  • Funding medical emergency
  • Paying for a child’s higher education
  • Paying for a child’s wedding
  • Business expansion
  • Home renovation


Benefits of Mortgage Loan


Having covered what is a mortgage loan and its important features, let us now take a look at the benefits of taking this loan.


  • You continue to remain the legal owner of your property while you use the funds from the loan to fulfill your needs
  • Mortgage loans are approved relatively faster since they are secured loans
  • The interest a borrower pays on a mortgage loan is significantly lower than that of a personal loan
  • You get flexible repayment tenures


There is no restriction on how you use the money.


What’s the Ideal Mortgage Term?


A mortgage term is the total number of years that you and the mortgage lender have agreed that you’ll pay back the mortgage loan. The longest mortgage term available is 40 years and the ideal mortgage term for you is heavily dependent on how much you desire to pay each month and how much you wish to borrow.


It is essential to complete a realistic budget so you can work out how much money you can put toward mortgage repayments every month. Some borrowers want to prioritize keeping their monthly payments low to help pay for other existing commitments that may indicate a longer mortgage term suits them better. Just keep in mind, that the longer your mortgage term, the more interest you are going to pay as you are paying your debt back at a relatively slower rate.


Concluding Thoughts: Should I Overpay My Mortgage?


When savings rates are very low, overpaying on your mortgage can be a good idea because it’s an easy way to save money on interest charges. But it is not right for all – you will lose access to the cash for your day-to-day spending and some mortgage loan agreements have restrictions on how much you can overpay, meaning you may incur a fee if you overpay more than the limit. Here are some pros and cons for overpaying: 



  • You will pay the mortgage loan off faster
  • You do not end up paying mortgage loan interest on the amount you are overpaying  
  • The money you save on loan interest charges is likely to beat the loan interest you’d earn keeping that money in a savings account  




  • Some mortgage loan agreements have terms that cap how much you will be overpaying and will alter your fees if you go over that
  • It will indicate that you have less money to spend day to day 
  • If you also have other existing debts, you must try paying those off first as they are likely to be all the more expensive


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