Securing considerable funds for buying property or meeting crucial financial needs often leads individuals to consider a mortgage loan. But what exactly is a mortgage loan? Why does it appeal as a financial option in India? This blog will explore the characteristics and advantages of mortgage loans, offering insights into why they might be a suitable choice for your needs.
What is a Mortgage Loan?
A mortgage loan involves pledging your property be it residential or commercial, as security for a loan. The lender assesses the property’s value to determine the loan amount, which you repay in installments over an agreed-upon period. In case of default, the lender can take possession of or sell the pledged property to recover the debt. Mortgage loans are widely used in India by individuals and businesses for purposes like purchasing a home, financing education, or meeting medical expenses.
Key Features of Mortgage Loans in India
1. Secured Nature
Mortgage loans are secured loans, meaning the loan amount is backed by the value of the property you pledge. This reduces the risk for lenders, often resulting in lower interest rates compared to unsecured loans like Personal Loans.
2. Loan Amount
The loan amount sanctioned under a mortgage loan generally depends on the value of the property and the borrower’s repayment capacity. Generally, lenders provide up to 75% of the property’s market value as a loan. The higher the property value and the borrower’s income, the larger the loan amount they can avail.
3. Long Repayment Tenure
Mortgage loans usually come with long repayment tenures, up to 15 years. The extended repayment period makes it easier for borrowers to manage their monthly outflows, as the EMIs are spread over a longer duration.
4. Lower Interest Rates
Due to the secured nature of mortgage loans, interest rates are generally lower than those for unsecured loans. However, the interest rate can vary depending on the lender, the borrower’s creditworthiness, and prevailing market conditions. Typically, mortgage loan interest rates in India range from 11% to 17% per annum.
5. Tax Benefits
One of the significant advantages of taking out a mortgage loan is the tax benefit. Under Section 24(b) of the Income Tax Act, borrowers can claim a deduction of up to Rs 2 lakh on the interest paid on the loan if the funds are used for purchasing or constructing a property. Additionally, if the mortgage loan is used for business purposes, the interest paid can be claimed as a business expense.
Benefits of Mortgage Loans
1. Access to Large Funds
A mortgage loan allows you to access a significant amount of money by leveraging the value of your property. This can be particularly useful when you need funds for large expenses like purchasing another property, funding higher education, or starting a new business.
2. Lower Interest Rates
As mentioned earlier, mortgage loans typically have lower interest rates compared to unsecured loans. This makes them a cost-effective option for borrowing large sums of money.
3. Long Repayment Period
The long repayment tenure of a mortgage loan means that you can repay the loan comfortably over a period that suits your financial situation. This reduces the monthly EMI burden, making it easier to manage your finances.
4. Retain Ownership
Even though you pledge your property as collateral, you retain ownership of the property throughout the loan tenure, provided you meet your EMI obligations. This means you can continue to live in or use the property as usual while paying off the loan.
5. Improvement of Credit Score
Timely repayment of a mortgage loan can help improve your credit score. A higher credit score increases your creditworthiness and makes it easier to obtain loans in the future at favourable terms.
Conclusion
A mortgage loan is a powerful financial tool that offers numerous benefits, including access to large funds, lower interest rates, and tax benefits. By understanding what a mortgage loan is and the various features and benefits it offers, you can make an informed decision that aligns with your financial needs and goals. Whether you’re planning to buy a new home, start a business, or fund your children’s education, a mortgage loan could be the right choice for you in India.
