Buying a home is a dream every person has. But sometimes, all the savings and hard work are not enough to buy the house you want. People are often unable to pay the entire price of the house upfront. This is where home loans come in. With mortgage home loans, more and more people's dreams of owning a home are coming true. Read on to find out everything related to mortgage loans in India.
What are mortgage loans?
A mortgage loan is a loan taken against a property. The borrower usually pledges their property to acquire a home loan. The loan can be used to buy a house, renovate or extend your house as well.
How does a mortgage loan work?
If you want to avail a mortgage home loan, you must choose a lender (bank or other financial institution). You must also meet their eligibility criteria of age, credit score etc. The loan will be offered to you with your property serving as a collateral. Therefore, mortgage loans are secured loans. You, as the borrower, sign an agreement to pay the lender in monthly instalments. There is also an interest rate involved.
Some standard eligibility criteria of mortgage loans
With every loan, the lender takes a certain amount of risk. Therefore, there are some set eligibility criteria that the applicants must satisfy. Most mortgage loans in India have similar eligibility criteria.
- Regular source of income: The first thing that lenders check is the applicant's source of income. You must have a regular and stable source of income to be eligible for mortgage loans. You can provide your IT returns of the last financial year or your salary slip as a proof of income. You can also use your current bank statement as a proof.
- Debt-to-income ratio of more than 50%: Your debt-to-income (DTI) ratio is the percentage of your net income that goes into paying debts. This includes existing loans, credit cards and EMI purchases. A large DTI percentage indicates that you have too much debt. Thus, lenders think that you won't be able to pay EMIs of your mortgage loan. To bring your DTI ratio down make sure to close off older debts.
- Decent credit score: Your credit score (CIBIL score) is used to measure your potential as a borrower. The higher the credit score, the more is your chance to get approved for loans. In India, mortgage loans are usually offered to people with a credit score of 580 or above.
Different aspects of mortgage loans
By now you know about the basics of mortgage loans. Here are more details about the loan, EMIs, interest rates and more.
A mortgage loan in India will usually offer up to 90% of the value of the collateral property as a house loan. The exact amount depends on your record as a lender, financial stability etc.
While taking a mortgage loan for your house, you also have to pay an amount as down payment. This is the amount that is not covered in the principal amount. It can vary from 10 to 40% depending on the mortgage loan amount.
You have to pay an EMI or Equated Monthly Installment every month. This is the way in which you repay your mortgage home loan to the lender. The EMI has two components - the principal amount and the interest. The amount of monthly EMI depends on the tenure of your loan.
Tenure of your home loan is the amount of time for which the loan has been sanctioned. It can vary from 5 years to even 25 years. For women borrowers, home loan tenures can even be 30 years.
There are two types of interest rates on mortgage loans - fixed interest rates and floating interest rates. Fixed interest rates remain the same throughout the tenure of the loan. Floating interest rates are subject to fluctuations in the market. They can either go up or down.
Home loans taken against a mortgage also levy a small processing fee and a service fee.
Looking for a housing loan? Piramal Housing Capital and Finance has a number of options - with easy approvals and quick disbursement.