As the old saying goes, food, clothes, and home is a necessity for each individual. While a stable source of income takes care of the first two, buying a house can be difficult as it is very expensive. This is the reason why one has to apply for a loan to finance the amount that is not available. One of the ways to do it is a Mortgage loan.
What is a Mortgage Loan?
A type of unsecured loan in which one is required to provide an asset as collateral to the lender to get funds, this is known as Mortgage Loan. It is usually sanctioned against an immovable asset like house or commercial property. Your asset is kept as collateral until you repay the entire amount.
Types of Mortgage loan
There are various mortgage loans available with lenders, based on which one suits you, you can opt for it. The various types of mortgage loans available are:
Conventional Mortgage Loan
Any loan that conforms to the basics standards set by the government, is known as a conventional mortgage loan. The pros for this loan type is that the closing costs are lower and it can be used for home loans whether it is your first or second home. However, the mortgage payment Is expensive and you need a higher credit score to avail of this loan type. Fixed-rate mortgage
In this loan type, the interest rate though during the start of the loan is fixed, but it may vary based on market conditions. The interest rate is tied to a benchmark rate according to which the interest rate may change as the loan tenure increases. While this can be beneficial for you if the market rates decrease but if there is some adverse situation the rate can increase.
As the name suggests, this loan has a fixed interest rate decided at the time of applying for the loan. No matter what your time period is and what the market conditions are the rate, in this case, will remain the same. This loan helps you in planning your monthly budget as the EMI remains the same, but their rate is higher than the adjustable-rate mortgage, and if the market rates fall you may have to refinance to avail yourself the benefit of the lower interest rate.
Usufructuary Mortgage Loan:
The applicant in this case gives the property and its rights to the lender. The borrower can still enjoy any rent or profit that may arise from the property. In case the borrower defaults, he can sell the property to the lender to adjust his principal and interest amount.
Subprime or Sub Mortgage Loan:
This loan is especially for individuals with low credit scores, the interest rate charged is higher. The interest rate can also be increased at any time of the loan tenure. The interest rate depends on credit score, the size of the down payment, the number of late payments on a borrower’s Credit history, and the types of delinquency found in the report.
These are the various types of mortgage loans that you can avail of. Some of the benefits of a Mortgage loan are:
1. They have a lower interest rate.
2. You can take the loan for a longer tenure. You can use the Mortgage loan EMI calculator to decide on the tenure that suits you.
3. The approved amount in a Mortgage loan is more and the fund can be used for both business and personal needs.
4. You can get a mortgage under-construction the property, fully constructed property, freehold residential property and commercial property.
With the digital age and growth of the financial market, there are various lenders available both online and offline for one to choose. Different lenders have different terms and conditions for lending, so based on your requirement you can opt for any lender of your choice.