Everything You Need To Know About Mortgage Loans

What is a mortgage loan?

A mortgage loan is simply a loan taken out against a property that you own. The property in question could be you house, a shop, or even a non-agricultural piece of land. Mortgage loans are offered by banks and non-banking finance companies. The lender provides you the principal loan amount and charges you an interest on it. You can repay the loan in affordable monthly instalments. Your property serves as your collateral, and it stays in possession of the lender until the loan is repaid in full. As such, the lender has a legal claim over the property for the tenure of the loan, and if the borrower defaults in paying off the loan, the lender has the right to seize it and auction it off.

Types of interest rates on mortgage loans

You can pay off your mortgage loan, either by opting for a fixed interest rate or a floating interest rate.

Fixed interest rate: As the name suggests, a fixed interest rate remains the same for the entire loan tenure. You may be allowed to opt for a fixed interest rate if you opt for shorter tenures. In case you are looking for a longer tenure mortgage loan, you may not be able to avail a fixed interest rate.

Floating interest rate: The interest rates are adjusted according to the prevailing market rates. You cannot predict the rate of interest but can get an idea of the current interest rate on the lender’s website. This is a rate of interest than can change periodically and is based upon the Bank of Canada’s Prime lending rate.

Features of a mortgage loan

Now that we know what is meant by a mortgage loan, and the interest rates associated with them, let’s look at its important features.

Not all types of properties, real estate or otherwise, are accepted by lenders.
Lenders generally accept properties that are fully constructed, for instance your house or a commercial shop.
The property should possess marketable value and be a freehold property i.e., one which gives the property owner the full legal right to transfer the ownership of the property.
Since the lender provides the loan amount by taking your property as collateral, a mortgage loan is regarded as a secured loan.
Mortgage loans are available for longer tenures lasting up to 30 years and can be repaid in affordable monthly payments.
A mortgage loan can be customized to suit your requirements

Reasons to take out a mortgage loan

A mortgage loan can be taken for many reasons like

Buying a property.
Funding a medical emergency
Paying for your children’s higher education
Paying for your children’s wedding
Business expansion
Home renovation

Benefits of mortgage loan

Having covered what is a mortgage loan and its important features, let us now 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 fulfil your needs. Mortgage loans are easily approved since they are secured loans but are subject to lender guidelines. The interest you pay on a mortgage loan is much lower than that of a personal loan. You get flexible repayment tenures.

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