Eligibility and Documentation Process of Mortgage for Loan

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From planned personal expenses to sudden professional demands, various financial needs can pop up at any time in life. There are various banks or NBFC’s who provide financial assistance to their customers by offering different types of loans. One such product is ‘Mortgage for Loan’. As the name itself defines, ‘Mortgage for Loan’ means a secured loan. Though banks are always on a roll to gain prospective customers, getting a ‘Mortgage for Loan’ can be tricky. Therefore, before running your pen over the agreement, you should go through important points. This can start from understanding what is a ‘Mortgage loan’.

Understand What is a Mortgage Loan?

Legally mortgage loan simply means pledging any immovable property or asset (residential or commercial) as collateral to the bank to avail of a loan.

Eligibility to Take a Mortgage for Loan

Mortgage for a loan is the most preferred product by borrowers who are looking for a huge amount of money, by simply providing property as collateral. Investing in building a strong applicant profile empowers you to access more favorable mortgage options and borrow a larger amount. The most common way of acquiring a mortgage loan is by mortgaging a piece of property. This can be both residential such as a house, or a residential land parcel or over commercial assets like mortgaging commercial spaces or commercial land parcels.

Apart from the estimated value of your collaterals, your financial strength may also play a strong role in building up your profile and eligibility, based on which the bank may agree to sanction a certain amount.

The bank may further evaluate your application by figuring out the stability of your income source, the number of earning members in your family, and the number of dependents on you.

People with stable jobs find it relatively easier to get a loan than say a self-employed individual with an erratic income.

Apart from your income, banks may also consider your retirement age as criteria to evaluate sustainable income based on which they will evaluate your repayment capacity and the tenure of the loan. In such a scenario having a younger co-applicant will increase your chances of acquiring high loan approval; the bank will club co-applicant’s income with the prime borrower, on which the bank may sanction a high amount with a capping of around 70 – 80% of the property value.

Registered or Non-Registered Mortgage Loan

There are two ways to avail mortgage loan one is a registered other is non registered mortgage loan.

To solidify a registered mortgage loan, the lender registers the agreement deed with the local registrar. This gives the lender full authority over the mortgaged property. It depends on bank to bank what their preferences are. Usually, most banks prefer registered mortgages, especially in India. It gives them more security and power in case of non-payment of the dues. Bank or NBFC can seize or auction the property directly without court intervention, to recover the due loan amount.

In a non- registered mortgage loan, there is no involvement of a registrar. To proceed with the mortgage, the borrower needs to hand over all valid property documents directly to the bank. Further approval or disbursement process is then done by reviewing the documents and by evaluating the value of the property.

Documentation Process of Mortgage for Loan

The process to avail a mortgage for a loan depends upon the kind of property to be mortgaged— for a domestic or residential property the process is simple. The borrower will have to provide complete details like identity proof, income proof, and more while submitting the loan application. The lender’s approval process involves submitting documents that prove your ownership of the property for the mortgage. Once the documents are submitted, banks undertake a valuation of the property to be mortgaged and disburse the amount accordingly.

In the case of commercial property, the borrower will have to provide identity proof, income proof, and proof of address and ownership documents along with a property valuation report. On commercial land, the borrower can acquire a mortgage for a loan over the leased property provided the terms of the lease deed permit the borrower to do so and he can present the consent letter from the lessor or the owner of the property to the lender.

To increase your chances of availing of the loan quickly make sure the information provided is true as the lender will do a thorough verification of all the information presented to them.

Reading between the Fine Lines in Mortgage for Loan Agreement

A mortgage for loan agreement is a legal document and must be read carefully before giving your consent for terms and conditions in the form of a signature. Banks usually offer to woo interest rates on mortgage loans. The tenure of mortgage is also longer e.g. 15 -20 years hence the EMI cost is much less. This makes it a highly conducive option for many requiring huge sum.

However attractive the loan offer may seem; the borrower must pay close attention to certain details in the agreement as it may not be short of hidden perils. You must understand banks’ policy on repayment defaults. It’s not always about the non- payment of dues that bank may term you as a defaulter, certain policies state that in case of (joint-loan) if there is a dispute between the two parties, or in case of death of the borrower or any legal charges pressed against the borrower, the bank could mark the borrower as a defaulter.

Also, check for foreclosure charges or penalties as certain banks may either have locking period or levy certain charges in the event of prepayment of loans. Be prudent and check if the agreement carries any hidden add-on charges or penalties. Certain banks may demand additional collateral along with the loan amount as security in case there is a drop in property rates.

It will be wise that you compare various bank offers and policies to gain more knowledge and analyze the best-suited offer you can take advantage of. Banks are always looking out for a reliable customer. If you share a good relationship with the bank and have a good credit score you can even bargain on the current rate of interest especially when they have their monthly or quarterly targets to achieve.

The Expensive Long Tenure of Mortgage Loan

A mortgage loan does give you the advantage of long repayment tenure at low EMI cost or if you have taken a floating loan you can extend the loan tenure in case there is a hike in the interest rate. Though it may be advantageous eventually longer tenure turns out costlier as you end up paying significantly more than the actual amount.

Let’s look at an example

For instance, let’s say you’ve taken a loan of Rs 50 lakh @ 11.90% for a tenure of 20 years. Your EMI will sum up to Rs. 54,706, and the total interest will come to Rs.81,29,468. Moreover, the total amount paid at the end of the tenure will be Rs. 1,31,29,468.  Further, in 5 years your principal loan amount will reduce to Rs.4,687,026, though in 5 years your yearly interest paid will be Rs. 5,52,190, whereas the extra principal amount paid in 5 years will be Rs.1,04,284 and the remaining outstanding amount will come down to Rs. 4,582,742.

Now in case, you have taken a floating loan and after 5yrs the bank decides to increase the interest rate from 11.9% to 12.4% on the remaining outstanding amount for the coming 15 years. In that case, your monthly EMI should come to Rs.56,185 and the total yearly interest payable will be Rs. 55,30,681. But to lower the EMI cost you decide to extend your tenure for 3 more years, in that case after taking into account the readjusted outstanding amount and additional 3 years; your monthly EMI may come down to Rs.53, 121 but the total yearly interest will increase up to Rs.68,91, 460. That means you may end up paying 20% to 40% more.

In case you are not satisfied with your current bank’s services or offers and you come across other banks that have better offers or attractive interest rates compared to your current lender, you can opt to switch to another bank. You may have to negotiate with the bank on foreclosure charges. With the new bank, you may have to ask for a waiver on their processing fee which they may incur as their closure policy.

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Also read:

Understanding Different Types of Mortgage for Loan in India

Reverse Mortgage for Loan: How It Can Help Senior Citizen?

What is a Mortgage? Know the Basics of Mortgage Loan

Loan Against Property EMI Calculator

Factors That Affect Loan Against Property Eligibility

Loan Against Property Without Income Proof & Income Tax Return