What is a mortgage loan and how to apply for it?

Property prices are constantly rising and it far exceeds the combined annual income of many households. As you know, the most common way to finance your house purchase is through mortgaging. It facilitates you to pay only a small amount in the form of a down payment, for instance, 20% and you get the loan for the rest of the amount. The same property is kept as a lien by your mortgage loan provider, but it remains in your possession as long as you are paying the EMIs regularly. Now, let us talk more about the term mortgage and how it can be useful to you.

About mortgage loan

It is a form of secured loan whereby you are required to keep an immovable asset with the lender. The asset can be your land, machinery, or your residential unit. Thus,a mortgage represents the property that remains in the custody of the lender, until the payment of the last instalment of the borrowed amount. In case you fail to pay the borrowed sums plus interest, the lender has the right to take away your property. The amount of EMIs is mentioned in your mortgage contract and you can also use an EMI calculator for LAPto figure out your mortgage loan EMIs. These loans can be taken not just for buying a house but for a number of other needs such as-

·         Medical expenses

·         Renovation of home

·         Marriage expenses

·         Business expansion

As long as you are pledging property to the lender, the borrowed amounts you can avail for any of your personal needs. It is different from personal loans where you are not required to mortgage an asset. This loan is comparatively easier to obtain as the lender has something in return i.e. the property documents, for the funds he is providing to you.

Benefits of mortgage loan

Mortgage loans are long-term loans that assist you in making purchases of high-value assets. Following are the major benefits of taking a mortgage loan-

·     High amounts can be borrowed- The loan amount you receive here is higher than the amount of other loan types. Since you provide the lender with immovable property, the same can be taken in possession of your finance company, if you fail to make repayment. This makes the lender feel free about repayment of the amount and a higher sum as a loan can be granted. 

·     Low rate of interest-A mortgage loan is a form of secured loan. The property that is on the mortgage is valuable and the lender shall not suffer even in case of defaults in payment by the borrower. This fact makes these loans cheaper. It is a relief to the borrowers who can avail of the loan facilities at low rates and the case of financial burden due to high-interest expenses does not arise.

·    Long loan tenure-Many financial institutions provide mortgage loans for a maximum period of 15 years. It is advantageous as even if you do not expect high cash flows in the business in the first few years or do not have a high income, you can obtain the loan for a larger tenure. As the loan tenure increases, the monthly EMI you will pay keeps on declining.

What is a loan against property (LAP) EMI?

The EMI stands for equated monthly instalments, which you pay regularly to your lender for the funds you have borrowed. This amount stays constant throughout the period. It has two components- the principal amount and the interest rate. Suppose if you want to foreclose the loan after some time, you pay interest only up to that point of time. The remaining principal is paid in a lump sum and a nominal foreclosure fee is levied. You can work out your EMI amount by using an EMI calculator for LAP.

How to use EMI calculator for LAP?

The use of EMI calculator for LAPis quite easy. You need to enter the information in the required fields. It typically includes the loan amount, the interest rate and the period for which the loan is to be taken. For example, when your loan amount is INR 400,000, the interest rate is 11% and the tenure is 10 years, your monthly instalment will be INR 5,510. This EMI has to be paid for the whole tenure period, i.e. 10 years X 12= 120 times. The calculator will also display the total amount payable in 10 years, which is INR 661,200. The interest that is included in this amount is INR 261,200.

Conclusion

A mortgage loan facility can be used if you have a fixed asset that can be provided as a mortgage to your lender. While obtaining a mortgage loan for purchasinga new home, you only need to make a small down payment and the rest of the amount is financed by your lender. The obligation for you then arises towards the lender to whom you will pay the remaining amount after the down payment in the form of equated monthly instalments (EMIs). Many lenders provide a useful tool which is the EMI calculator for LAP that can help you in determining your EMI figure. It can assist you in choosing a suitable loan amount and loan tenure.