Mortgage Loan is a kind of Loan that is available to customers who are ready to pledge their property in lieu of a loan. Let me explain how a loan process works out and then we will go to mortgage lending.
When you approach a bank for a loan, they will check your income/expenditure details and decide how much you can repay and what is your financial strength. This would help the bank decide on how good a customer you are. There are some extra things that can help improve your credit worthiness. They are:
1. A Guarantor - A Guarantor is a person who provides a guarantee to your loan. In case you default on your payments he takes responsibility of repaying it.
2. A Collateral - A Collateral is a property that the bank would take possession of, if you default on your payments.
Once the bank is confident of your financial strength they would lend you the loan.
Mortgage lending would come under the category of Loans that are disbursed if you provide a collateral. If you have a house or gold jewels or any other property that has a standing asset value you can pledge them in the bank. The bank would disburse a loan that is approximately 75 - 80% of the collateral value. This value would vary from bank to bank. You can opt to repay the amount as EMI or opt to pay only the interest amount every month and repay the principal loan amount in one shot and take back your property.
Since you are pledging your property for the loan, the bank would relax a bit on the Interest rate as well since the risk of lending to you is greatly reduced due to the collateral you have provided.
Banks do not have any major restrictions on giving mortgage loans because they can make enough money out of your property that to mortgage to them if you default on your payments.
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