Do you own a property and need money? A mortgage loan is a relatively cheap and efficient way of raising funds. Quite simply, instead of selling your property to raise money, you can leverage it as collateral to get a loan. In India, the bank or NBFC (Non-Banking Financial Company) holds your property as security until you repay the loan, after which you get back your property. If you fail to repay the loan, the lender can dispose of it to recover the unpaid dues.

What is a mortgage loan in India?

• A mortgage loan, or loan against property, is a popular type of loan to take as it is cheaper than taking a personal loan. Banks are willing to offer lower interest rates since they hold your property as security.

• It is like a personal loan because you can use the loan amount for any purpose – like debt consolidation, business expansion, education expenses, family or medical emergency.

• However, it differs from a personal loan in that you can get this kind of loan at a lower interest rate since you are offering significant collateral in the form of property.

• You can get a larger loan amount and a longer repayment period when compared to a personal loan.

Thus, the key difference is that a loan against property is a secured loan, (i.e. secured by collateral), whereas a personal loan does not involve any security. This makes a loan against property less expensive than a personal loan.

Types of interest rates on a mortgage loan

There are two main types of interest rates on a mortgage loan:

Fixed rate of interest: The interest rate remains the same for the entire duration of the loan. Lenders usually offer this type of interest rate for a specific tenure of loan, and many may not offer this as an option at all for a loan against property.

Floating rate of interest: The interest rate changes according to prevailing market rates. Since the rate changes and is dependent on fluctuating market conditions, it is not possible to predict a typical rate. You need to be fairly familiar with the movement of interest rates and the larger economy when choosing this type of interest rate. Naturally, choosing a floating rate of interest would also mean changes in your EMI, depending on current interest rates.

The floating interest is linked to the Marginal Cost of Funds based Lending Rate (MCLR). The rates are typically published on the lender website and could change periodically.

Need help choosing the right loan?

If you are confused about the various offerings available on the market and need advice on which loan offer suits you best, CreditMantri can help you. We will study your loan requirement, the details of your property, your income and credit profile, guide you through the entire application process and match you with the best possible offer on the market that suits your profile and needs.