Earning their favours among borrowers due to their simplistic financing arrangement, mortgage loans have turned out to be one of the most popular financing options. These advances allow individuals and businesses to leverage any owned asset/assets for raising funds. As they carry minimal risk for the lending institutions, additional eligibility requirements apart from property mortgage remain minimal. It thus allows an individual with a decent income to raise high-value funding easily if he/she owns any eligible asset allowed for mortgaging.
Mortgage financing is originally a types of loan arrangement that allows an eligible individual/entity to raise funding against a property collateralised as a mortgage. There are several types of mortgage advances that one can look out for. While some are common and come wit no restrictions to end-use, other are utility-specific loans that one can avail only to meet particular funding needs. Below given is a list of some common types of mortgage advances available in the market today.
Types of Mortgage Loans
1. Home loan
A home loan, standing right by its names, is a type of mortgage advance that lenders provide eligible individuals to fulfil their residential property ownership aspirations. These advances use the property so purchased as a mortgage for the purpose of financing. Based on the LTV that the lender offers under a home loan, the borrower needs to pay the remaining price of the house as down payment. LTV for home loans can go as high as up to 90% with some best lenders in the market.
2. Loan against property
One of the most common types of mortgage loans, a loan against property is a financing option that comes with nil restrictions to end-use. It thus allows the loan amount to be used for a range of big-ticket financing needs. Some common uses of a loan against property include meeting wedding expenses, providing for higher education of children, meeting emergency medical expenses, completing travel goals, and the likes.
3. Top-up loan
A top-up mortgage advance is usually a loan availed over and above the existing loan against one property mortgage. The financing so availed can be used for meeting diverse funding needs of personal nature. Top-up loans are most commonly availed under home loans, often also known as second mortgage advances. The value of financing under these advances remain high, although quite under the initial amount raised as mortgage financing. Availing this loan is only possibly if the value of your property significantly exceeds the existing/outstanding loan.
4. Lease rental discounting
A property that has been put on lease, generating income through rent, can also be used for the purpose of raising funds under the mortgage financing arrangement, whereby such arrangement is known as lease rental discounting. The financing value under this lan is based on the monthly rent generated, whereby the latter is converted into EMI for loan repayment. Teh tenrue of a lease rental discounting credit can never exceed the running lease’s tenure.
6. Reverse mortgage financing
Especially designed for meeting the financing needs of seniro citizens, a reverse mortgage arrangement allows mortgaging of the residential property for generating a lumpsum or periodic funds. No repayment is involved under this arrangement unless the borrower or a heir agrees to repay for property recovery.
While all of these are mortgage advances, one must know that mortgage loan interest rate commonly remains lower than several other secured and unsecured advances combined. Thus, when affordability in financing is your top priority and needing funding of high value, a mortgage advance should be your go-to choice of financing.
Among these types of mortgage loan, home loans and loans against property are the most common ones that households avail. The latter can also be significantly useful for business financing due to its no end-use restriction feature. When availing financing, you must decide on the type of mortgage advance to avail based on the uses it would be put to for best aligning your finances with expenditure.