3 Common Misconceptions About Mortgage Loans
Mortgage-based loans make for the cheapest forms of financing as compared to personal loans. However, there happen to be a slew of misconceptions which discourage the customers from applying for mortgages.
Let us debunk the most common ones among them.
Only residential property can be mortgaged
There is a wide perception that a mortgage loan can be secured only in lieu of residential real estate. This is a wrong notion. A mortgage-based loan can be secured in lieu of commercial real estate as well. When an individual offers a residential property as collateral, they can either put down their current, pre-occupied residential property as a collateral or they can put down another residential real estate which is not pre-occupied as collateral.
Financial institutions, however, insist on commercial enterprises that request mortgages, to, preferably, offer a non-commercial plot as collateral. Alternatively, residential real estate, including plots, are also accepted as collateral from them.
Commercial properties, on the other hand, usually come with a higher margin which translates into sanction of a lesser amount in the way of the loan.
Loan amount sanction depends on original price of property
Banks evaluate the loan amount based on their own pre-conditioned formulae and standards. This evaluation rate is standardised, based on the circle rate of the property, its age, present condition, etc. In conclusion, the original price does not contribute anything to the loan against property.
Possession goes to the bank right after loan sanctioning
This misconception has evolved from the trend of gold-loaners, assuming possession of the yellow metal, when sanctioning and transferring the loan to the borrower. However, the scenario is quite different when a person or a firm opts for a financial loan in exchange for putting down real estate as collateral. This is also the reason why home owners can put down their current occupied homes as collateral as well, without fearing eviction. Money lenders do not move against the property owner unless the term duration for which the money is lent, is over, and any outstanding amount is not repaid.
However, to ensure that the property owner does not go ahead with any other kind of loan or sale of any kind on the same mortgage-bound property, the papers for the same are submitted to the lender at the time of the loan sanction. The borrower is entitled to get the same back after settling all the dues.