Mortgage Loan

Mortgage loans are an integral part of the financial services industry. Housing has always been a primary necessity, while the cost of housing has not always been affordable for a large number of potential home buyers. Under these circumstances the system of extending financial assistance, or loans, to potential home buyers gained prominence.
This system developed into a market where a risk-taker covers his risk by attaching ownership of the mortgaged property to the lender until the loan is repaid in full. This is how the mortgage loan evolved into the highly effective variants of housing finance that we have today.

One of the best definitions of the term mortgage was given by Sir Edward Coke (1552-1664). He said the term is derived from two French words: “mort,” meaning dead, and “gage,” meaning pledge. Sir Edward believed that the term gained meaning and substance from the state of insecurity surrounding the loan extended to the borrower and the property attached as guarantee to the lender.

In the USA, UK, EU, Japan, and Australia the term mortgage loan is used, while in India the term Home Loan is prevalent. The mortgage process begins with the home loan seeker.
Based on his requirements, a four point approach is adopted by the lender, after the loan seeker has satisfied the lender’s eligibility criteria.

The price that the home loan seeker agrees to for the loan (Rate of interest)
The percentage of equity the loan seeker is prepared to bear (Borrower’s contribution)
The loan repayment amount and duration that the loan seeker is comfortable with
The duration of the loan seeker’s residence in the mortgaged home
The loan seeker must satisfy the lender about his eligibility for the loan before any of the above points are considered. The loan seeker’s eligibility depends primarily on his creditworthiness, or repayment ability, and in this respect most lenders screen the borrower according to stringent eligibility rules.

In the United States the prevalent mortgage rates are:

Period of Mortgage Rate of interest
15 Years 5.49 %
30 Years 5.76 %
1 Year 5.61 %

Source:Bloomberg

In India the prevalent home loan rates are:

Tenure Rs. 1 Lakh Rs. 5 Lakh Rs. 25 Lakh Rs. 100 Lakh
2 Yrs 7.5 % 7.5 % 7.5 % 7.75 %
5 Yrs 7.5 % 7.5 % 7.5 % 7.75 %
7 Yrs 7.75 % 7.75 % 7.75 % 7.75 %
10 Yrs 7.75 % 7.75 % 7.75 % 7.75 %
15 Yrs 7.75 % 7.75 % 7.75 % 7.75 %

Source: myiris.com

Mortgage finance is a fast growing segment of financial services around the world, and most leading financial services companies are constantly improving upon their services by adding value to their services. New and attractive features are constantly added, together with specialized services to attract more and more home loan seekers.

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Last Updated on : 24th August 2013