Diversifying Options: Exploring Types of Mortgage Loans

In India, people opting for a mortgage loan have a wide variety of options to choose from. But before making any decision, it is necessary to understand the definition of mortgage loans. 

A mortgage loan is a secured loan availed by borrowers looking for a substantial amount of cash for personal or business needs. To avail funds, borrowers need to pledge their property as collateral to lenders. Banks offer about 70% of the current value of a property as a loan against property. 

Read this blog to gain detailed insights into different types of mortgage loans, how it works and more. 

What is a mortgage loan?

A mortgage is a special kind of loan borrowers can avail to take care of their homes, land, or any real estate. To secure the mortgage loan, property is used as collateral. This means until the mortgage loan is repaid, the property is pledged to a lender. 

Mortgage loans are also referred to as loans against property. If borrowers choose to opt for mortgage loan, they can also avail other additional advantages such as extended tenor of repayment, competitive rates of interest, prepayment charges, and more.

Borrowers usually repay the sanctioned mortgage loan amount in the form of EMIs (equated monthly instalments). The payment procedure comprises two parts- the principal amount and the loan interest. The principal amount is what lenders disburse into a borrower’s account. The loan interest is the cost associated with a mortgage loan. The EMI remains fixed through the loan tenor. 

How does a mortgage loan work?

A mortgage loan is simply a credit facility that a borrower avails by pledging a property. The more a person understands how a mortgage loan works, the easier it will be for them to choose the right loan terms. 

Here’s how a mortgage loan works:

  • Collateral

The purchased property here serves as collateral. This implies that if a borrower fails to repay the loan amount on time, the lender will seize the property.

  • Loan acquisition

When a person wishes to purchase their dream home but faces a financial crisis, they can apply for a mortgage loan from a bank or NBFC. Here, a lender assesses a borrower’s creditworthiness before approving a loan to them. 

  • Repayment

Usually, mortgage loans function with a fixed rate of interest and a predetermined repayment tenor. Borrowers make regular monthly payments to lenders that include both the principal and interest amount.

  • Ownership transfer

Once a borrower finishes repayment, the lender no longer has any claims on one’s property. Moreover, this provides borrowers with complete ownership of the property

What are the different types of mortgage loans ?

Mortgage loan interest plays an important role in shaping the financial commitment of borrowers. Here is a detailed overview of the different types of mortgage loans:

  • Fixed-rate mortgages

Borrowers can avail a consistent rate of interest throughout the loan term. Thus, it becomes easy to predict monthly payments and borrowers can accordingly plan in the long term

  • Variable rate mortgages

The other name of variable rate mortgages is floating interest rate mortgages. The LAP interest rate here changes regularly, influenced by fluctuations in the market. 

  • Adjustable rate mortgages

Initially, these loans offer a lower rate of interest and fluctuate as per the market conditions. 

  • Reverse mortgages

This type of mortgage loan is designed especially for homeowners aged 62 years or older. They mainly aim to convert a portion of the equity in their homes to cash. Here, borrowers can borrow against their home value and the money gets credited as a fixed monthly payment. 


Most banks and NBFCs provide pre-approved offers to their existing customers. These offers are provided for home loans, loans against property, etc., to expedite the loan approval process. Applicants can check property loan eligibility for these offers from a lender’s official website by entering their names and other necessary details. 

To conclude, a mortgage loan is an essential credit facility for borrowers who need cash urgently to keep their business running or for emergencies but face financial constraints. There are different types of mortgage loans available. By now, the reader must have a clear understanding of mortgage loans and how they work. This will make it easy for them to make an informed financial decision. 

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