A mortgage loan is a financial tool that enables individuals to purchase real estate properties by borrowing funds from a lending institution, typically a bank or a mortgage lender.
It is a type of loan specifically designed to buy a home or property, where the property itself serves as collateral for the loan.
In simpler terms, a mortgage loan is a long-term loan that helps individuals fulfill their dream of owning a home without having to pay the entire purchase price upfront.
There are several reasons why people opt for mortgage loans. One of the primary reasons is that it allows individuals to become homeowners even if they don’t have sufficient savings to make an outright purchase.
Mortgage loans enable borrowers to spread the cost of the home over a longer period, making it more affordable by breaking it down into manageable monthly payments or EMIs.
In recent years, the mortgage loan market has witnessed various trends in interest rates offered by banks and lending institutions.
Interest rates on mortgage loans play a crucial role in determining the overall cost of borrowing. They can vary based on multiple factors, including the borrower’s creditworthiness, prevailing economic conditions, and the type of mortgage loan chosen.
It’s important to note that interest rates can be fixed or adjustable, with fixed-rate mortgages offering stability and predictability, while adjustable-rate mortgages may have lower initial rates but can change over time.
In this article, we will discuss the mortgage loan application process, from preparing for the application to applying for the loan and understanding the role of interest rates, and much more.
Table of Contents
What is Mortgage Loan?
A mortgage loan is a secured loan that is used to finance the purchase of real estate. The borrower pledges the property to the lender as collateral, which means that the lender will have physical possession of the documentation of the property but the possession of the property itself will be with the borrower.
Once the borrowed money is paid off fully, the lender will return the documents to the buyer and will receive the documents.
If the borrower fails to pay the loan, then the lender has the right to take possession of the property if the borrower defaults on the loan.
Mortgage loans are typically long-term loans, with terms of 15 to 30 years. There are two main types of mortgage loans, which are as follows-
- Fixed-Rate Mortgages
- Adjustable-Rate Mortgages
Fixed-Rate Mortgages
A fixed-rate mortgage is a type of mortgage loan in which the interest rate remains the same for the entire term of the loan. This means that your monthly payments will be the same each month, regardless of changes in market interest rates. Fixed-rate mortgages are typically the most popular type of mortgage loan, as they offer borrowers a sense of stability and predictability.
Adjustable-Rate Mortgages
An adjustable-rate mortgage (ARM) is a type of mortgage loan in which the interest rate can change over time.
The interest rate on an ARM is typically fixed for an initial period, after which it can adjust up or down, based on changes in market interest rates.
ARMs can offer lower initial interest rates than fixed-rate mortgages, but borrowers should be aware that their monthly payments could increase in the future.
Mortgage Loan Interest Rate Offered
The following is the interest rate offered by the banks when you get a mortgage loan-
| Bank | Interest Rate | Loan Tenure | Loan Amount | Eligibility Criteria |
| State Bank of India (SBI) | 6.75% – 8.25% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 30,000 per month |
| HDFC Bank | 6.5% – 8.5% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| ICICI Bank | 6.5% – 8.5% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Axis Bank | 6.5% – 8.5% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Kotak Mahindra Bank | 6.5% – 8.5% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Punjab National Bank (PNB) | 6.75% – 8.25% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Bank of Baroda (BoB) | 6.75% – 8.25% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Union Bank of India (UBI) | 6.75% – 8.25% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Canara Bank | 6.75% – 8.25% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Indian Bank | 6.75% – 8.25% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Bank of Maharashtra (BoM) | 6.75% – 8.25% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
| Indian Overseas Bank (IOB) | 6.75% – 8.25% | 15 – 30 years | Up to 90% of the property value | Minimum income of Rs. 25,000 per month |
How to Apply for the Mortgage Loan?
The following are the steps that you’ll have to take to apply for the Mortgage Loans-
- The very first step is to apply for a mortgage loan is to evaluate your financial situation and analyze a look at your income, expenses, and debts to determine how much you can afford to borrow
- Now, find your Credit Score as lenders heavily consider credit scores when assessing loan applications.
- After that, you’ll have to Gather the necessary documents mentioned below and start evaluating various banks and NBFCs on their mortgage loans
- Choose the lender which suits your reequipment and provides you with the best deal
- Now, once you’ve chosen a lender, you’ll need to complete the loan application. The application will require information about your details, employment history, financial information, the property you intend to purchase, etc.
- After submitting your application, the lender will review your financial information, credit history, and other factors.
- If your application is approved, you’ll have to sign the necessary legal documents and secure the mortgage loan
Documents required for Mortgage Loan
The following are the documents required for the Mortgage Loan-
Salaried Individual
- Duly filled loan application form
- Passport-size photographs
- Identity proof (PAN card, Aaadhar card, passport, driving license, voter ID card, etc.)
- Address proof (electricity bill, ration card, Aaadhar card, driving license, rental agreement)
- Latest salary slips
- Form 16 issued by the employer
- Latest bank statements
- Processing fee cheque
Self-Employed Professional/Individual
- Duly filled loan application form
- Passport-size photograph
- Identity proof (PAN card, Aaadhar card, passport, driving license, voter ID card, etc.)
- Business proof
- Financial statements for the last 3 years
- Latest income tax return certificates (last 3 years)
- Profit and loss statement (P&L)
- Latest bank statements
- A cheque for the processing fee
FAQ
Banks look at the borrower’s financial profile report provided by the credit beauro such as credit score, income stability, employment history, debt-to-income ratio, and the borrower’s ability to make a down payment.
The down payment requirement varies depending on the borrower’s profile and the amount required. Your loans typically require a down payment of 20-30% of the home’s purchase price.
The timeline varies depending on several factors, such as the bank opted for, the complexity of the application, and the borrower’s responsiveness, etc. On average, it can take 30 to 45 days.
Yes, in addition to the loan amount, borrowers should consider closing costs, which include fees for appraisal, title insurance, loan origination, and other expenses associated with finalizing the loan.
I’m Shiv Kumar, a graduate with a passion for finance, marketing, and technology. My journey into finance started with a desire to understand money management and investing.
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