Mortgage loan is classified on the following two bases:-
- Classification on the basis of Interest Rates:
On the basis of Interest Rates, Mortgage loan can be further divided into following three sub-categories:
- Fixed Rate Mortgage Loan:
As the name signifies, these loans are offered at a fixed rate of interest. The EMI of such loans can be identified even before availing the loan reason being there is no change in the rate of interest at any point of time.
- Variable/Floating Rate Mortgage Loan:
Variable rate mortgage loans are loans that are offered on variable rate of interest. This interest rate fluctuates with movements in the base rate quoted by the bank which is directly dependent on the repo rate quoted by the Reserve Bank of India. The risk of higher rates and the benefit of lower rates both have the same probability in case of such mortgage loans.
- Adjustable-Rate Mortgage Loan:
Adjustable rate mortgage loans are those for which the rate of interest is fixed for an initial period of loan and then it correspondingly changes to a higher or a lower rate of interest depending upon the performance of the economy. Some of the other distinguishing features of such loans are-Banks offer discounted rate of interest for an initial period but charge a higher processing fee for the same.
- Banks offer discounted rate of interest for an initial period but charge a higher processing fee for the same.
- Lower initial loan instalment translates to higher loan eligibility for customers.
iii. Fixed interest rate for initial period offers higher loan liability certainty to customers for the initial period of mortgage loan.
- Classification on the basis of agreement between the lender and the borrower:
On the basis of agreement between the lender and the borrower mortgage loan can be further divided into following six sub-categories:
- Simple Mortgage Loan:
In a Simple mortgage, the possession of the mortgaged property is not transferred from borrower to the lender. But if the borrower fails to repay the loan, the lender has the right to sell the property and recover the loan from the proceeds of the sale.
- Usufructuary Mortgage Loan:
In a usufructuary Mortgage, the borrower has the right to sell the property to the lender of the loan and allows him/her to receive an income (rent, profit, interest, etc.) which can be adjusted against the principal and well as interest amount of the mortgage loan until the repayment of the loan. However, the title deeds remain with the owner.
- Mortgage by Conditional Sale:
Under such Mortgage, the borrower apparently sells the property to the lender on certain conditions-
- On failure to repay the mortgage money before a certain date the sale shall become absolute, or
- On condition that on such repayment of mortgage money the sale shall become invalid, or
- On condition that on such repayment the lender shall retransfer the property.
- Mortgage by deposit of title deeds:
In such mortgage, the borrower delivers the title document of the property to the lender with an intention to create a security thereon.
- English Mortgage:
In English mortgage, the borrower agrees to transfer his/her property absolutely to the lender in case he/she is unable to repay the loan till a particular date. However, once the amount is paid in full, the property is again transferred back to the borrower.
- Anomalous mortgage:
It is a mix and match of all the above types of mortgage loans.