Mortgage Loan

Mortgage loans are a very important and integral part of the financial services industry. The need for housing has always been a prime necessity in the history of survival while the cost of housing has not always been within immediate affordability for a large number of people seeking new homes.

Under these circumstances the system of extending financial assistance or loans to potential home buyers gained prominence. In course of time this system absorbed the time tested realities of the market wherein a risk-taker covers his risk and thus arose the process of attaching the ownership of the mortgaged property to the lender till the loan is repaid in full.

This was how the mortgage loan evolved into all 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 who was born in 1552 and died in 1634. According to him the term is derived from a couple of French words, ‘Mort’, meaning dead and ‘Gage’, meaning pledge. Sir Edward felt 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 whereas in India the term Home Loan is prevalent.

The mortgage process begins with the home loan seeker and based on his requirement 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 home loan seeker is ready to bear (Borrower’s contribution)
• The loan repayment amount and duration that the loan seeker is comfortable with
• The loan seeker’s duration of stay in the mortgaged home

Moreover the loan seeker has to satisfy the lender about his eligibility for the loan before any of the above points are considered. The loan seeker’s eligibility primarily depends on his creditworthiness or repayment ability and in this respect most lenders follow stringent eligibility screening of the borrower.

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 %