Mortgage Loan

A mortgage loan is a loan against immovable property.

>> Who is it suitable for?

It is suitable for Individuals and businesses. Money can be raised by mortgaging property with the lender, typically a bank.

>> On what assets can a mortgage loan be raised?

Typically mortgage loans can be raised against immovable tangible assets such as house or commercial property and business assets such as factory, shop etc.

>> What are the important terms to be understood while raising a mortgage loan?

a) Borrower: Owner of the property who needs loan against said property. He who has an ownership interest in the property to be mortgaged.

b) Lender: The bank who lends the money against the property.

c) Interest: It is the cost of the borrowed money which is debited every month in loan account and the same is be paid by the borrower, once it is due.

d) Mortgage: It is a charge on the property of the borrower which limits his right and interest. This charge is created by the owner in favor of lender in mortgaged property.

>> Till how long is the property required to be mortgage with the lender / Bank?

The property mortgaged with the bank at the time of raising the loan and will be free of any charge once the loan along with up to date interest is fully repaid as per contractual terms or foreclosed by paying the same early.

>> What is the duration of the loan?

Mortgage loan is normally given for long term duration with a fixed monthly repayment schedule called EMI (Equated monthly installments).

>> What is an EMI?

EMI is a repayment schedule decided by the bank which comprises of principal and interest. The longer the tenure of the loan, the lesser is the EMI burden. Shorter the tenure, greater is the EMI burden.

>> How will the bank decide on your loan eligibility?

Eligibility is decided on the earning capacity of the borrower with a service record for salaried individuals and financial statements of businesses. The bank generally keeps in mind that the borrower is able to comfortably repay the loan on time while still maintaining the standard of living. The bank typically assumes 50-60% of the residual income of the borrower is available for repayment of the loan in salaried individual borrower.

>> Can the loan be prepaid ahead of schedule?

Yes, most banks allow prepayment of the loan. Some banks levy prepayment penalties up to

2 – 3% of the principal amount outstanding mainly if it is taken over by other bank/ FI.

>> Does the amount of loan vary with the value of the asset?

In case of commercial/home property bank generally appoints a government recognized valuer who ascertains the value of the property and helps the bank to decide the eligible amount of loan. The bank will normally extend loan facility up to 50-80% of the value of the asset depending on the norms of the bank.

What can the borrower do in case of a grievance?

If the borrower has grievances, he can lodge the complaint in writing with the bank and ask for a receipt of the complaint. If no response is received within 30 days of lodging the complaint, the borrower can approach the banking ombudsman within whose jurisdiction the branch of the bank is located.