In order to understand the different types of mortgage loans available, let’s revisit what a mortgage loan is. A mortgage loan is a type of loan that gives you access to finance by pledging a property as security. A mortgage loan is a secured loan, which implies that the lender holds collateral against the loan.
Here are the different types of mortgage loans, and the differences among them.
- Loan against property
Also known as LAP in finance parlance, a loan against property can be availed by offering both residential and commercial properties. This mortgage loan requires the borrower to mortgage property owned or under their control to the lender. The original property documents in the borrower’s possession need to be handed over to the bank or NBFC to avail a LAP. The documents will be returned once the loan has been repaid in full.
Lenders offer various loan terms for LAP, usually ranging from 10 years to 20 years. An individual borrower has the option to prepay the loan amount at no extra cost. The funds via a property loan may be used for both personal or professional requirements such as financing a wedding, buying a second home, higher education, and medical expenses.
- Home Loan
A home loan is the most sought-after mortgage loan. Though this is normally taken to buy a home, borrowers may also use it to renovate or refurbish, expand or even rebuild their existing homes. Property loan interest rates are very competitive, and borrowers can also avail tax exemptions on interest and principal components of the home loan as well as on stamp duty and registration charges of the home.
The lender will hold the mortgage of the pledged property until the full repayment of the home loan. Most lenders offer the option of part-payment of the home loan with the option to the borrower to either reduce the number of EMIs or the EMI amount.
- Loan against commercial property
As the name suggests, this type of mortgage loan is for the purchase of a commercial property and is ideal for those looking to expand or for entrepreneurs looking to fund a new office or workspace.
The term commercial property includes shops, office space, warehouses, or a commercial complex. This loan can also be used to buy commercial space. Lenders offer competitive property loan interest rate as these mortgage loans are secured by commercial property.
- Second loan mortgage
A second loan mortgage is one where one mortgage loan is already in effect and the borrower takes another loan on the same property. Also known as a top-up loan, such loans are commonly taken when the property requires repairs or alterations, though the funds may be used for any purpose, such as higher education or business expansion. The EMI on the top-up loan will run concurrent with the repayment of the first loan, so it is best for borrowers to check their finances before opting for this.
- Reverse mortgage
A reverse mortgage loan is designed with senior citizens in mind. This mortgage loan option works in the exact opposite way of a regular mortgage loan. In a reverse mortgage, the borrower will mortgage a property to the lender. Based on the value of the property, the lender will give the borrower an income instalment every month.
On the death of the property owner, the lender will sell the property, deduct the total monthly instalments paid to the lender and the residual amount is given to the legal heirs of the lender.
Mortgage loans come in many variables and offer the ideal option for you to start or to grow your property portfolio or finance your goals. When choosing the right funding option, ensure that you scout for the best property loan interest rate that is being offered by various banks and NBFCs so you can make repayment stress-free. Since mortgage loans usually involve big-ticket funding, planning repayment from the get-go is a smart move.
