When it comes to purchasing your first home or making plans for your future, while still managing life currently, it can be pretty hard and stressful. From understanding investments, to thinking about loans and planning a future around you individually, or you and your family, it takes quite a lot. Looking at your income to see if you can work out a budget for the next 30 years, is a lot of work. Here we go through everything you need to know when it comes to taking out a mortgage for your dream house, dream car or just your dream So let’s start with.
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What is a Mortgage?
A mortgage or mortgage loan is a loan for immovable property. Here the lender keeps property as collateral up until the borrower repays the total amount plus interest. Most people who buy a home, do it with a mortgage. It is of great use if you can’t pay the full amount by yourself.
Different Types of Mortgage
There are different types of Mortgages, let’s explore some of them.
1. Simple Mortgage
In a simple mortgage, the individual or borrower mortgages property in order to avail of a loan. In a simple mortgage, the lender has the power to sell the property if the borrower does not pay back the sum of money lent.
2. English Mortgage
In this type of mortgage, there is a personal liability with the borrower. With this english mortgage the mortgaged property is shifted to the owner or lender, with this there is an agreement that it will be given with full ownership to the borrower once the full payment has been made.
Read: All You Need to Know about the Bad Bank of India- The NARCL
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3. Usufructuary Mortgage
Using the Usufructuary Mortgage, the property is transferred to the lender, the lender receives rent that is garnered by the property, here there is no personal liability like with the English Mortgage.
4. Mortgage by Conditional Sale
Under this type of mortgage, the borrower sells their property with the condition that the sale will become effective if they default in repayment but becomes void on successful repayment of the loaned amount of money
5. Mortgage by Title Deed Deposit
Under the mortgage by title deed deposit, the borrower deposits the title deed of the property in question, that is mortgaged with the lender, against the loan that it is available for.
6. Reverse Mortgage
In the reverse mortgage loan, it is usually secured for a property that enables the borrower to access the unmortgaged value of the property in question. Reverse mortgages allow homeowners to convert their home’s equity into legal tender income, without any monthly mortgage payments.
Difference Between Mortgage and a Loan
- Loans are available only for a specific reason, in a way, home loans are for purchasing a home or constructing a home, educational or student loans are for fees. But when it comes to mortgages, there are no restrictions, the borrower can use the funds for any purpose.
- With Loans, the person lending will only give a specific portion of the property’s price, as a loan. The remaining amount has to be arranged by the individual as a down payment. However, with mortgages, the borrower can use the funds after mortgaging the property as collateral.
- With loans, no collateral is needed. But with mortgages, repayment tenure can be up to 30 years.
- For a loan you can even borrow a small amount, however, for
mortgages, larger loan amounts are preferred.
It’s important to remember that a mortgage is a type of loan but not all loans are mortgages.
Difference Between Equitable Mortgage Loan and Registered Mortgage Loan
Before we understand the difference between the two, let’s understand what each of them means.
Read: Bank of Maharashtra Home Loan Interest Rates – Updated in January 2024
Equitable Mortgage
This is a type of mortgage where the mortgage agreement is made between the borrower and lender only. In this, there is no third party or government agency involved. The term equitable from an equitable mortgage is taken from equity which stands for interest of justice.
Registered Mortgage
Unlike the equitable mortgage, with this mortgage, it is necessary to get a stamp of approval from the sub-registrar to legalise the agreement. In this, the borrower and lender agree to a set of rules and conditions for the duration of the loan that is set by a third party.
Differences
- Stamp Duty:
In an equitable mortgage, the stamp duty is negligible and comes up to either 0.1% or 0.2% of the total sum, sometimes it may even be 0%. But for a registered mortgage, the stamp duty can be 5% of the total amount.
Read: 8 Best Ways to Save Taxes on Your Home Loan Repayment
- Process:
Naturally one of the biggest differences is the making of the agreement. In an equitable mortgage, the buyer needs to buy the stamp paper, with a registered mortgage, you will need to approach the sub-registrar. Plus with an equitable mortgage, it is only between the buyer and seller, no third party and with a registered mortgage there is an involvement of the third party.
- Consequences if you don’t pay:
If you don’t pay off your mortgage in the equitable mortgage the bank has to auction off the property in question. But when you don’t pay the amount of money in a registered mortgage the bank can do whatever it wants with it.
When we talk about Mortgages, we also need to remember Mortgage Interest rates. You may have heard of terms like adjustable mortgage rate or fixed-rate mortgage. You must be wondering what they mean, let’s find out.
There are two types of Mortgage interest rates
- Fixed Rates
With fixed rates, your interest rate remains the same till the end of your mortgage. If you’re paying 3.5% interest initially, you’ll be paying 3.5% interest till the end of your mortgage or till when you refinance the mortgage. This makes your budget easier to manage.
- Adjustable Rates
These interest rates change based on the market. These interest rates first stay fixed for about 5-10 years. After this period is over, your interest rate changes monthly depending on the market.
This is a lot to take in at a single glance. It’s not just about looking at your
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salary for the next couple of years or where you see yourself financially in the years to come. Looking for a way to finance your dream home? Just click on the link below to get the right financial help. NoBroker can help you find the right house and the right loan for it too! You can drop us a comment if you need any additional assistance.
Read: Tata Capital Home Loan EMI Calculator
FAQs
Q1. How long is a mortgage?
Ans. The duration of a mortgage is normally 15 to 30 years.
Q2. How can I use my mortgage for college fees?
Ans. Loans are available only for a specific reason, in a way, home loans are for purchasing a home or constructing a home, educational or student loans are for fees. But when it comes to mortgages, there are no restrictions, the borrower can use the funds for any purpose.
Q3. What is an English mortgage?
Ans. In this type of mortgage, there is a personal liability with the borrower. With this type the mortgaged property is shifted to the owner or lender, with this there is an agreement that it will be given with full ownership to the borrower once the full payment has been made.
Q4. How should I use my mortgage?
Ans. A mortgage is a loan for immovable property. Here the lender keeps property as collateral up until the borrower repays the total amount plus interest. Most people who buy a home, do it with a mortgage. It is of great use if you can’t pay the full amount by yourself
Q5. What is a registered mortgage?
Ans. Unlike the equitable mortgage, with this mortgage, it is necessary to get a stamp of approval from the sub-registrar to legalise the agreement. In this, the borrower and lender agree to a set of rules and conditions for the duration of the loan that is set by a third party.
Q6. How much research do the lenders do before giving you the money?
Ans. Lenders usually look at 2 months of recent bank statements along with your mortgage application. You need to give bank statements for any accounts that funds, in order to qualify for the loan.
Q7. Why would my mortgage be denied?
Ans. They may believe your salary is too low to meet the repayments, or you haven’t had a job for very long. Sometimes the type of employment is an issue as lenders are notoriously, and very annoyingly, reluctant to grant mortgages to the self-employed.
Q8. What is the difference between a simple mortgage and a reverse mortgage?
Ans. In a simple mortgage, the individual or borrower mortgages the property in order to avail of a loan. In a simple mortgage, the lender has the power to sell the property if the borrower does not pay back the sum of money lent.
In the reverse mortgage, it is usually secured for a property that enables the borrower to access the unmortgaged value of the property in question. Reverse mortgages allow homeowners to convert their home’s equity into legal tender income, without any monthly mortgage payments.
Q9. What is a residential mortgage, do I need it?
Ans. A residential mortgage is a mortgage for a house that you are planning to live in. It is a long-term loan that helps you to purchase your desired property. The mortgage has to be paid back to the lender after approximately 25 years or more with of course the interest needed.
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What is a Mortgage?
A mortgage is a type of loan specifically used for purchasing immovable property, such as a house or land. The borrower pledges the property as collateral, and the lender holds the property until the borrower repays the loan amount plus interest. This allows individuals who cannot afford to pay the full amount upfront to purchase a property [[1]].
Different Types of Mortgages
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Simple Mortgage: In a simple mortgage, the borrower mortgages the property to avail of a loan. If the borrower fails to repay the loan, the lender has the power to sell the property [[1]].
-
English Mortgage: In an English mortgage, there is a personal liability for the borrower. The mortgaged property is transferred to the lender, with an agreement that it will be given back to the borrower with full ownership once the full payment has been made [[1]].
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Usufructuary Mortgage: With a usufructuary mortgage, the property is transferred to the lender, who receives rent generated by the property. There is no personal liability for the borrower, unlike in an English mortgage [[1]].
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Mortgage by Conditional Sale: In this type of mortgage, the borrower sells their property with the condition that the sale will become effective if they default on repayment. If the loaned amount is successfully repaid, the sale becomes void [[1]].
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Mortgage by Title Deed Deposit: In a mortgage by title deed deposit, the borrower deposits the title deed of the property as collateral against the loan [[1]].
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Reverse Mortgage: A reverse mortgage is usually secured against a property and allows the borrower to access the unmortgaged value of the property. Homeowners can convert their home's equity into income without making monthly mortgage payments [[1]].
Difference Between Mortgage and a Loan
Loans and mortgages are both types of financial arrangements, but there are some key differences between them:
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Loans are typically available for specific purposes, such as purchasing a home, constructing a home, or paying for education. In contrast, mortgages can be used for any purpose, as there are no restrictions on how the funds are used [[1]].
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Loans usually cover only a specific portion of the property's price, and the borrower must arrange the remaining amount as a down payment. With mortgages, the borrower can use the funds after mortgaging the property as collateral, and no down payment is required [[1]].
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Loans do not require collateral, while mortgages involve pledging the property as collateral [[1]].
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The repayment tenure for loans is typically shorter, while mortgages can have repayment tenures of up to 30 years [[1]].
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Loans can be obtained for smaller amounts, while mortgages are generally used for larger loan amounts [[1]].
Difference Between Equitable Mortgage Loan and Registered Mortgage Loan
There are two types of mortgages: equitable mortgage and registered mortgage. Here are the differences between them:
-
Equitable Mortgage: In an equitable mortgage, the mortgage agreement is made directly between the borrower and lender, without the involvement of a third party or government agency. The stamp duty for an equitable mortgage is usually negligible [[1]].
-
Registered Mortgage: In a registered mortgage, the mortgage agreement must be approved and stamped by a sub-registrar to legalize the agreement. The borrower and lender agree to a set of rules and conditions for the loan, which are set by a third party. The stamp duty for a registered mortgage can be up to 5% of the total loan amount [[1]].
Mortgage Interest Rates
Mortgage interest rates can be either fixed or adjustable:
-
Fixed Rates: With a fixed-rate mortgage, the interest rate remains the same throughout the duration of the mortgage. This provides stability and allows for easier budgeting, as the monthly payments remain consistent [[1]].
-
Adjustable Rates: Adjustable-rate mortgages have interest rates that can change based on market conditions. These mortgages typically have an initial fixed-rate period of 5-10 years, after which the interest rate adjusts periodically based on market fluctuations [[1]].
FAQs
Q1. How long is a mortgage? A mortgage typically has a duration of 15 to 30 years [[1]].
Q2. How can I use my mortgage for college fees? While loans are typically available for specific purposes, such as education, mortgages can be used for any purpose. Therefore, you can use the funds from a mortgage to pay for college fees [[1]].
Q3. What is an English mortgage? In an English mortgage, there is a personal liability for the borrower. The mortgaged property is transferred to the owner or lender, with an agreement that it will be given back to the borrower with full ownership once the full payment has been made [[1]].
Q4. How should I use my mortgage? A mortgage is a loan for immovable property, such as a house. It is commonly used by individuals who cannot pay the full amount upfront. Most people who buy a home do so with a mortgage [[1]].
Q5. What is a registered mortgage? A registered mortgage requires approval and stamping from a sub-registrar to legalize the agreement. The borrower and lender agree to a set of rules and conditions for the loan, which are set by a third party [[1]].
Q6. How much research do lenders do before giving you the money? Lenders typically review the borrower's mortgage application and require recent bank statements for the past two months. The borrower needs to provide bank statements for any accounts that hold funds in order to qualify for the loan [[1]].
Q7. Why would my mortgage be denied? Mortgage applications can be denied if the lender believes the borrower's salary is too low to meet the repayments or if the borrower has not been employed for a sufficient period of time. Some lenders may also be reluctant to grant mortgages to self-employed individuals [[1]].
Q8. What is the difference between a simple mortgage and a reverse mortgage? In a simple mortgage, the borrower mortgages the property to avail of a loan. The lender has the power to sell the property if the borrower fails to repay the loan. In a reverse mortgage, the borrower can access the unmortgaged value of the property, converting it into income without making monthly mortgage payments [[1]].
Q9. What is a residential mortgage, and do I need it? A residential mortgage is a long-term loan used to purchase a house that the borrower plans to live in. The mortgage must be paid back to the lender over a period of approximately 25 years or more, along with the interest. Whether or not you need a residential mortgage depends on your personal circ*mstances and goals [[1]].
