A mortgage loan is a type of loan where property/real estate
is the collateral. It is pledged to borrow money. You/borrower have to enter
into an agreement with the bank. As per Indian Money Review You get
cash up front and then make payments over a period of time through EMIs. The
bank/lender has possession of the original property documents till you repay
the loan.
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Types of mortgage:
- Simple mortgage:
In a simple mortgage, the mortgagee (This could be a
bank/lender), does not enjoy possession of the property. The mortgagor (one who
pledges the property), makes a legally binding agreement to repay the mortgage.
The mortgagor gives the mortgagee the right to sell the property, to recover
the dues.
- English mortgage:
In this agreement, the mortgagor agrees to repay the
mortgage money within a certain date, and then transfer the property to the
mortgagee (bank/lender). The mortgagee agrees to retransfer the property back
to the mortgagor once the dues (mortgage money), is repaid as per terms and
conditions.
- Usufructuary mortgage:
The mortgagor (borrower) gives possession of the property to
the bank (mortgagee), until mortgage money is repaid. The mortgagee also
receives rent/other benefits from the land. The mortgagee/bank agrees to
appropriate the property in lieu of interest/payment of mortgage money.
- Mortgage by deposit of title deeds:
The mortgagee (bank) provides documents of title of
immovable property to the mortgagor with intent to create a security of the
same.
- Mortgage by conditional sale:
The mortgagor sells the property to the mortgagee with a
condition that the sale will be absolute/permanent on a default. If the
mortgage dues are paid, the sale is null and void and the mortgagee will
transfer the property back to mortgagor.
Functioning of a mortgage loan:
The money you borrow on the mortgage is the principal. You
have to pay back the principal amount on the mortgage each month. In addition
you have to pay back interest on the loan.
Repayments depend on type of interest rate which may be
fixed or floating rate. Fixed rates mean payments remain constant across loan tenure.
Floating rates change with market rates.
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