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Term Of The Day: Mortgage Loan

June 08 2015   |   Proptiger

Mortgage Loan

A mortgage home loan is secured by using one's home as collateral.

 PropTiger Explains Mortgage Loan

While buying a home, mortgage loan is taken to finance the purchase, pledging the home as collateral. But generally, mortgage loans are used by individuals and businesses to purchase real estate. The home buyer is expected to repay the principal amount with interest, in monthly installments till he owns the property completely. If you default on the payment of equated monthly installments (EMI) , the bank would be able to claim ownership over your home. When there is a foreclosure, the bank might liquidate your real estate assets to clear the mortgage debt.

There are fixed rate mortgage loans and floating rate mortgage loans. If you take a mortgage loan at a fixed interest rate, the interest rate would remain constant throughout the loan period. But, if you take a mortgage loan at floating interest rates, the interest rate might raise or fall depending on market fluctuations and changes in government policies.

When mortgage loan interest rates fall, home loans would become cheaper. In fact, when interest rates fall, you will be able to buy a more expensive home at the same equated monthly installments (EMI) . When mortgage loan interest rates rise, home loans would become more expensive. But, when home loans interest rates fall, more people would buy homes, pushing home prices up.

While buying Apartments in India, in the long run, the interest paid on mortgage loan is substantial, and might exceed the principal amount. For instance, the total interest payment on a home loan of Rs 1 crore over 20 years at 10.15% is 13, 399, 539.

The RBI cut the repo rate thrice in 2015, bringing down the repo rate at which it lends to commercial banks from 8 to 7.25. Leading Indian banks including SBI has reduced the interest rates by .15 to .30%.

Check out PropGuide's comprehensive guide to real estate terms here.

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