Lenders offer multiple mortgage types so that you can choose the option that suits your unique financial situation. To make an informed decision, you must understand what makes each type different.
What is a mortgage?
A mortgage is a loan to purchase a property such as a home or a plot of land. You borrow money to pay for the property and repay it in fixed monthly instalments over 10-30 years. The property purchased acts as collateral for the loan. If you default on the loan, the lender can sell the property to recover their dues.
Types of mortgages
Simple mortgage
Under this mortgage type, you pledge the property as security but retain its ownership. In a default, the lender has the right to sell the property and recover the outstanding amount. The rest of the sale proceeds will be transferred to you.
Mortgage by conditional sale
In this type, you transfer the ownership of the property to the lender conditionally. The transfer only becomes effective if you default on the loan. If you repay the loan on time, the ownership stays with you.
English mortgage
Under this mortgage, you transfer the property's ownership to the lender. You have the right to get the ownership once the mortgage is fully paid off without a default.
Fixed-rate mortgage
The interest rate remains constant throughout the loan's term in this mortgage category. This protects you against interest rate fluctuations and leads to predictable monthly payments.
Usufructuary mortgage
Under a usufructuary mortgage, you cannot use the property during the mortgage period. The lender can use and derive rental income from the mortgaged property until the loan is repaid.
Anomalous mortgage
This is a type of mortgage that breaks traditional rules. The loan terms are unique and do not fit into the structure of standard mortgages.
Reverse mortgage
This kind of mortgage is designed for senior citizens. If you own a property, you can borrow money against your equity in the property. Here, the lender pays you periodically against the equity, and you retain ownership. Once you pass away or stop living there, the lender can auction the property for loan recovery.
If you own a residential property, you can get an Axis Bank Reverse Mortgage Loan. You can get a loan between ₹5 lakh up to ₹1 crore at attractive interest rates. The best part is that you can complete the application process for this loan digitally from the comfort of your home.
Equitable mortgage
Here, you pledge your property as a security with the lender without transferring its ownership. The lender has an equitable right to the property, through which the property can be sold in case of default. This category of mortgage is suitable where a formal mortgage cannot be executed.
Registered mortgage
In this case, the borrower uses their property as a collateral to avail the loan. The legal agreement is formalised through registration of the mortgage with the local land registry.
Conclusion
Lenders offer different types of mortgages to cater to various borrowers with unique needs and financial situations. Before taking advantage of a mortgage loan, you must understand what type of mortgage it is and decide accordingly. Your repayment terms, interest computation, and timing of ownership transfer greatly depend on the mortgage type.
Also Read: Mortgage Loan vs Personal Loan
Frequently asked questions
What are the 6 types of mortgages?
The six main types are simple mortgage, mortgage by conditional sale, English mortgage, fixed-rate mortgage, usufructuary mortgage, and reverse mortgage.
What are the most common types of mortgages?
Fixed-rate and reverse mortgages are among the most common categories of mortgages.
What is the most used mortgage?
Fixed-rate mortgages are the most popular due to their stable and predictable monthly payments.
How many types of mortgages can there be?
There are different types of Mortgage Loans, including simple, conditional Sale, English, fixed-rate, usufructuary, and reverse mortgages.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
