Types of Mortgages in India: Know Your Loan Options

What is a Mortgage Loan?

A mortgage loan is a secured loan that enables you to use your property, a house, a shop, and/or land as collateral to borrow money from banks or financial institutions. The property is still in your possession, and you have the right to use it, but in case of default on the loan, the lender has the right to dispose of it, that is, to sell it. People also prefer using it for unexpected financial needs like business expansion, education, or health crises.

How Mortgage Loans Work in India

• Apply for a Loan: Submit your property documents and loan application to a bank or NBFC.
• Property Evaluation: The lender checks the property’s legality and the market value of the property.
• Loan Sanctioning: The lender approves the loan amount basing on the valuation and customer's profile.
• Agreement and Disbursal: A loan agreement is signed by you and the loan amount is credited to your account.
• Repayment: You pay back the loan in regular monthly payments. Not making payment can result in legal action or a property being repossessed.

Types of Mortgage Loans in India

• Simple Mortgage: The lender is given the right to use the property or collect rent/profits from it instead of immediate loan repayment. The borrower gives possession but not ownership.
• English Mortgage: The borrower transfers ownership of the property to the lender upfront, with a condition that it will be returned once the full loan is repaid.
• Mortgage by Title Deed Deposit: The borrower delivers the property title documents to the creditor as assurance without the need of registration of mortgage.
• Mortgage by Conditional Sale: The property is effectively transferred to the lender, but with the provision that the purchase will be undone in case of borrower repayment.
• Usufructuary Mortgage: The lender is given the right to use the property or collect rent/profits from it instead of immediate loan repayment. The borrower transfers possession but not ownership.
• Anomalous Mortgage: A combination of two or more different mortgages, defined by the conditions agreed by the borrower and the lender.

Key Features of Different Mortgage Types

• Loan Amount & Interest Rates: Mortgage amounts are influenced by the appraisal of the property, borrower's credit, and type of mortgage. Interest rates can be fixed or floating.
• Repayment Terms and Conditions: Repayment structures differ by mortgage type. Typically repaid through scheduled EMIs over a fixed tenure.
• Security and Collateral Requirements: All mortgage loans require security via property collateral. Requirements vary from depositing title deeds to complete transfers of ownership.

Comparing Mortgage Loan Types in India

Feature	Simple Mortgage	Usufructuary Mortgage
Property Possession	Stays with borrower	Given to lender
Loan Repayment	Paid through EMIs or lump sum	Repaid through property’s rent/income
Lender's Rights	Can sell property if borrower defaults	Can use or rent out the property
Ownership Transfer	No transfer of ownership	No ownership, only possession
Common Use Case	Personal/business funding with full control	Rental or income-generating properties

Feature	English Mortgage	Conditional Sale Mortgage
Property Possession	Usually remains with borrower	Can vary depending on terms
Loan Repayment	Fixed EMI-based repayment	Must repay within agreed period
Lender's Rights	Full rights to property on default	Gains full ownership if not repaid
Ownership Transfer	Yes, until repayment	Treated as a sale unless repaid
Legal Formality	Needs formal registration	Treated like a sale deed

Best Mortgage Type Based on Your Needs

• Choose Simple Mortgage if you don’t want to share the property and want to be responsible for monthly payments.
• Choose an English Mortgage when you want to borrow a big sum of money and if you are sure you will be able to return it within a clear time frame.
• Select Usufructuary Mortgage if the real estate is commercially viable and you don't want to pay monthly EMIs.
• Choose Conditional Sale Mortgage if you are satisfied with a legal sale contract and can repay a loan within the set time.
• Use a Title Deed Deposit (Equitable Mortgage) for quicker approvals and minimal paperwork in urban settings.
• Choose Anomalous Mortgage if you want a mixture of terms that will be decided based on your creditor’s discretion.

How to Choose the Right Mortgage Loan Type for You

• Consider Your Property Type and Investment Goals
• Define your goal: Whether you want to raise business capital, generate rental income, or fund a long-term investment, the loan structure should align accordingly.
• Evaluate Loan Features and Terms
• Compare repayment options: Be familiar with the EMI structure, the borrowing period, and the interest rates for the different types of mortgages.
• Check for flexibility: Look for prepayment clauses, penalties, and ease of foreclosure.
• Assess processing time: If you need urgent funding, mortgage by title deed deposit is quicker, especially in urban regions.

Understanding Lender Policies and Approval Criteria

• Check eligibility: The majority of lenders usually consider three factors: your credit score, income stability, and repayment capacity.
• Know collateral requirements: There are mortgages that are secured only by the title deeds, but others need the whole transfer process.
• Compare lenders: Banks may have stricter terms, whereas NBFCs often offer flexible approval criteria.

Advantages and Disadvantages of Different Mortgage Types

Pros	Cons
Borrower retains possession of property	If borrower defaults, lender can take possession
Clear, straightforward loan agreement	Limited loan amount (typically 60-70% of property value)
Flexible use of property (e.g., renting it out)	Risk of losing property if unable to repay loan
Suitable for personal or business funding	May require high creditworthiness for approval

Pros	Cons
Borrower retains ownership of property	Borrower loses possession and control over property during loan tenure
Suitable for generating rental income	Lender collects rent, which may reduce borrower’s income potential
Lower risk for borrower compared to other types	Limited to properties that can generate consistent rental income
Ideal for long-term loans and investors	Requires property with good rental yield potential

Pros	Cons
Full legal ownership transferred to lender until loan is repaid	Borrower loses full control over property during loan term
Provides lender with strong security	Complex and time-consuming process
Offers higher loan amounts due to transfer of ownership	Potentially higher legal costs and documentation requirements
Good for large-value loans	Full repayment is crucial to reclaim property ownership

How to Apply for a Mortgage Loan in India

• Research Lenders: Compare different lenders (banks, NBFCs) to find the best mortgage rates, loan terms, and processing fees.
• Pick the category of the loan: Based on your requirements, decide the mortgage type (simple, usufructuary, etc.).
• Apply for Loan: The mortgage loan application form should be filled online or at the lender's branch.
• Property Verification: The consideration of a due legal and technical process in which the lender verifies the property.
• Loan Approval: The lender will approve or decline the loan according to your application and property valuation.
• Agreement Signature: After the approval, sign the loan agreement which is a contract containing the terms and conditions.
• Get the Loan: The loan amount is either credited to your account which you can withdraw or you can give it to the seller.

Documents Required for Mortgage Loan Application

• Identity Proof: Aadhar card, passport, voter ID, or PAN card.
• Address Proof: Utility bills, rent agreement, or passport.
• Income Proof: Salary slips, income tax returns, bank statements, or business profit/loss statements.
• Property Documents: Title deed, sale deed, property tax receipts, etc.
• Photographs: Passport-sized photographs of the applicant and co-applicant.
• Bank Statements: Last 6 months of bank statements for income verification.
• Credit Report: Lenders may request your credit score for eligibility check.

Eligibility Criteria for Mortgage Loans in India

• Age: Applicants typically need to be between 21 and 60 years of age.
• Income: Regular and stable income from employment or business.
• Credit Score: A good credit score (above 750) increases the chances of loan approval.
• Employment: Salaried individuals or self-employed professionals with a steady income.
• Property Type: The property being mortgaged should have clear legal titles, no disputes, and be in a location with good market value.
• Repayment Capacity: Lenders assess your income-to-debt ratio to ensure you can repay the loan comfortably.

Common Mistakes to Avoid When Choosing a Mortgage in India

• Not Understanding Loan Terms
• Ignoring Hidden Fees and Costs
• Overlooking Your Long-Term Financial Goals