Mortgage Loans: Definition, Features & How it Works

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Curious about mortgages, what are they? Generally, a mortgage is a contract whereby one party grants another party the legal right to use another party’s asset or property as collateral to secure a loan. Remember that understanding the concept and definition of a mortgage is crucial to grasp the house loan sector.

What is a Mortgage Loan?

Mortgage loans are a type of loan used to buy real estate, like an apartment or house. Because the property is used as collateral for the loan, the lender can take control if the borrower doesn’t repay the loan. 

A mortgage loan usually has longer terms for paying them back than other loans, between 15 and 30 years. Mortgage loans have either set or variable interest rates. 

The loan amount will depend on the borrower’s income, credit score, and the value of the home they want to buy.     

Features of Mortgage Loans

Now that we know what it is and how much interest it costs let’s look at some of the most important things about a mortgage loan. 

  • Lenders do not accept all kinds of properties, whether they are real estate or something else.
  • Usually, lenders give loans on fully built buildings, like your house or a business shop.
  • It should be a freehold property, meaning the owner has the legal right to give away the property. The property should also have a selling value.
  • As collateral, the lender uses your home as security for the loan amount, so a mortgage loan is called a protected loan.
  • Mortgage loans can be taken out for more extended periods, up to 30 years, and can be paid back in monthly installments or EMIs.
Mortgage Loans: Definition, Features & How it Works

Benefits of Mortgage Loan

Now that we know what a mortgage loan is and its main features, let’s look at why you might want to get one. 

  • You will still legally own your home when you use the loan money to meet your wants.
  • Mortgage loans are easy to get because they are protected loans.
  • It costs a lot more to take out a personal loan than to get a home loan.
  • You have a choice of repaying terms.

Types of Mortgage Loans

You should know about these different kinds of debts.

Simple Loan

A simple mortgage is a deal where the lender can get their money back from the sale of the property used as collateral if the borrower can’t repay the loan in full. The property is not given to the lender, though.

Usufructuary Mortgage

Because of this, the land is given to the lender, who can then make money from it. A usufructuary debt usually doesn’t give you full ownership, just a short-term right to use the property.

English Mortgage

The lender can take the collateral if the user doesn’t repay the loan within the agreed-upon time frame.

Sub Mortgage

If a person wants to borrow money with bad credit or a low credit score, the lender will probably charge them more in interest. This is done to make sure they get their money back if the loan doesn’t pay. These loans are called sub mortgage loans.

How Mortgage Loans Work

Mortgages let people and businesses buy property without paying the total price simultaneously. The person who takes out the loan pays it back with interest over a certain number of years or until they own the land outright. Full amortization is what most standard mortgages do. 

This means that the monthly payment amount will stay the same, but over the life of the loan, different amounts of capital and interest will be paid with each payment. Most mortgages have terms of 30 or 15 years.

They are also called claims on property or liens against property. The lender can return the property if the borrower stops paying the debt.

For instance, when a person buys a house and promises it to their lender, the lender has a claim on the property. If the buyer doesn’t pay, this protects the lender’s interest in the property. In a foreclosure, the lender may kick the people out, sell the house, and use the money from the sale to pay off the mortgage.

Mortgage Loan Process

Getting a mortgage, also called a loan against property, is the same process, no matter how you go about it. Make sure that getting a home loan is the right choice before starting the process. 

Loan terms, interest rates, and other things will vary from bank to bank. It’s essential to research your choices ahead of time. Once you have a short list of banks you want to apply to, check to see if you meet their standards for applying and being eligible. 

Get all the documents you need if you are qualified. It generally includes documents showing who you are, where you live, how much money you make, and proof of identity. 

You might be able to apply online at some banks, but most of the time, you should be able to go to the branch closest to you. The application process could take three to ten days if you are eligible.

Types of Interest Rates on Mortgage Loans

When you pay off your mortgage, you can choose between an interest rate that stays the same or changes over time. Let’s figure out what these two words mean.

Fixed Interest Rate

As the name suggests, a set interest rate stays the same for the loan term. If you choose a shorter term, you might be able to get a set interest rate. Most likely, you won’t be able to get a fixed interest rate on a home loan with a longer term. 

Mortgage Loans: Definition, Features & How it Works

Floating Interest Rates 

The interest rates are changed based on what is currently available. You can’t know the interest rate, but the lender’s website can give you an idea of what it is now. This interest rate is tied to the Marginal Cost of Funds-based Lending Rate, or MCLR, and can change occasionally.


For most people who don’t have hundreds of thousands of dollars in cash to buy a house directly, mortgages are an essential part of the home-buying process. There are different kinds of home loans for everyone, no matter what their situation is. Through different government-backed programs, more people can get mortgages and make their dream of owning a home come true.

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