Mortgage Loans Explained: Key Factors Types, and Benefits

Choosing the right type of mortgage loan is a pivotal step in managing your liquidity and long-term financial health. Unlike a standard home loan used for buying a house, a mortgage loan (often referred to as a Loan Against Property) allows you to unlock the hidden value of your existing assets. As a regulated NBFC, Hero FinCorp offers tailored solutions across different types of mortgage loans to meet diverse funding needs.

What is a Mortgage Loan?

A mortgage loan is a secured credit facility where an immovable asset residential, commercial, or industrial is used as collateral. The borrower transfers a legal interest in the property to the lender while retaining possession. According to the Reserve Bank of India (RBI) guidelines, mortgage loans are categorized as secured credit, where the loan amount is primarily determined by the property’s market value and the borrower's repayment capacity.

How Mortgage Loans Work?

In the current financial year, mortgage loan types operate on a structured Loan-to-Value (LTV) ratio. Generally, lenders provide between 60% and 75% of the property's current market value as a loan.

• Repayment: Typically through Equated Monthly Installments (EMIs).
• Tenure: Ranges from 5 to 15 years, depending on the age of the property and the borrower's retirement age.
• Interest Rates: Usually slightly higher than home loans but significantly lower than personal loans.

5 Different Types of Mortgage Loans for Home Buyers

For an Indian home buyer, the "mortgage" is simply the security you give to the bank in exchange for the capital to buy your property. Here are the five primary types of mortgage loans structured specifically for acquisition and construction:

1. Home Purchase Loan

This is the most common type of mortgage loan in India. It is used to buy a new or resale residential property.

Key Advantage: Offers the highest Loan-to-Value (LTV) ratio. As per RBI guidelines, you can get up to 90% funding for properties valued at ₹30 Lakhs or less.

Compliance Tip: Ensure the property has a clear "Title Deed" to avoid rejection during the legal technical verification (LTV) stage.

2. Home Construction Loan

If you already own a plot of land and wish to build a house, this is the appropriate mortgage type.

Disbursal Logic: Unlike a purchase loan, the funds are released in stages (tranches) based on construction milestones (e.g., plinth level, roofing).

Documentation: Requires an approved building plan and an architect's estimate of the construction cost.

3. Plot Plus Construction Loan

This "composite" loan allows you to buy a piece of land and build on it within a specific timeframe (usually 2 to 5 years).

Expert Insight: Lenders often mandate that construction must begin within a set period from the date of the land purchase to keep the interest rates at par with standard home loans.

Risk Note: If construction doesn't start, the lender may convert the loan into a "Land Loan," which carries a higher interest rate and fewer tax benefits.

4. Home Improvement & Extension Loan

For buyers who have already purchased a home but need to renovate or add an extra floor/room.

Tax Benefit: Under Section 24(b) of the Income Tax Act, you can claim interest deductions of up to ₹30,000 per annum for repairs or renewals (within the overall ₹2 Lakh limit).

LTV Slab: Usually capped at 70-80% of the estimated renovation cost.

5. Home Loan Balance Transfer (HLBT)

While not a "purchase" loan, this is a vital type of mortgage loan for existing buyers looking to reduce their interest burden.

Regulatory Update: Under the RBI (Pre-payment Charges on Loans) Directions, you can transfer your floating-rate loan to another regulated NBFC like Hero FinCorp with zero foreclosure charges.

Benefit: This allows you to capitalize on lower market rates, potentially saving lakhs in interest over the remaining tenure.

Key Factors in Comparing Mortgage Loan Types

When evaluating different types of mortgage loans, consider these critical parameters:

• LTV Ratio: Ensure you check the maximum LTV offered. For residential LAP, it is usually higher than for industrial property.
• CIBIL Score: A score of 750 or above is typically required to secure the most competitive interest rates.
• Processing Fees: These are one-time costs ranging from 0.5% to 2% of the loan amount plus GST.
• Key Fact Statement (KFS): As per RBI's mandate, every regulated NBFC must provide a Key Facts Statement(KFS) outlining the Annual Percentage Rate (APR) and all hidden charges.

How to Apply for a Mortgage Loan with Hero FinCorp?

Applying for a mortgage loan with a regulated NBFC like Hero FinCorp is streamlined for the digital age:

1. Online Assessment: Use a mortgage loan calculator to estimate your eligibility.
2. Documentation: Submit ID proof, address proof, and original property documents (Title Deeds).
3. Property Inspection: A technical and legal valuation of the asset is conducted.
4. Sanction & Disbursal: Post-verification, the loan amount is credited to your account.

Conclusion

Choosing the right type of mortgage loan is no longer just about finding the lowest interest rate; it’s about aligning the loan structure with your life goals. Whether you are a first-time home buyer utilizing a Home Purchase Loan for its 90% LTV, or a property owner leveraging a Loan Against Property to fund a business, the key is transparency.

Frequently Asked Questions(FAQs)

Can I Get A 100% Mortgage Loan For My Home Purchase?

No. As per RBI’s Loan-to-Value (LTV) guidelines, no regulated lender can provide 100% funding. For properties up to ₹30 Lakhs, the maximum funding is 90%. You must arrange at least 10–25% as a down payment from your own funds.

Which is better: a Fixed-Rate or a Floating-Rate Mortgage?

In the current market, Floating-Rate loans are generally preferred because they carry zero prepayment penalties under RBI norms. Fixed rates provide EMI stability but often come with a 1–2% interest premium and may involve foreclosure charges.

Does a "Mortgage Loan" Include The Cost Of Stamp Duty And Registration?

No. RBI explicitly mandates that the LTV ratio must be calculated solely on the property's market value. Costs like stamp duty (5–7%) and registration (1%) must be paid separately by the borrower.

How Does My CIBIL Score Affect the "Type" of Mortgage I Get?

While your score doesn't change the type of loan, it dictates the interest rate and loan amount. A score above 750 allows you to access "Prime" mortgage products with the lowest spreads over the repo rate.

Can I Switch From a Loan Against Property (LAP) to a Home Loan?

No. Since the "End Use" of these products differs one for general purposes and the other specifically for asset acquisition you cannot convert one into the other. However, you can use a Balance Transfer to switch to a lender offering better terms within the same category.

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