If you’re planning to buy a house, it’s important to understand the different types of mortgage loans to determine your financial flexibility and long-term stability. There are several different types of mortgage loans depending on the use case, and choosing the right one can be the difference between financial struggle and worry-free homeownership.
This will help you make an informed decision and secure the right loan to purchase your dream property.
What is a mortgage?
A mortgage is a type of loan that lets you buy real estate, where the property itself serves as collateral. It offers a secure and cost-effective way of buying a home or commercial space without paying the full amount upfront. Instead, you can repay the loan in comfortable instalments over a fixed period, which typically ranges from 15 to 30 years.
Mortgages are typically issued by lenders and financial institutions with interest rates varying based on factors like loan type, interest rates, and the borrower’s creditworthiness. Since a mortgage is a long-term commitment, it’s important to select the right loan type and repayment plan to avoid any hassle later.
Types of Mortgage Loans in India
Mortgage loans in India are segregated into seven categories based on the nature of the transaction and interest rate calculation. Here are all of them:
Mortgage Loan Types Based on Interest Rate
- Fixed-rate mortgage loans
As the name suggests, fixed-rate mortgages come with a set interest rate, applicable throughout the tenure. Because the rate is fixed, borrowers can easily calculate their outlay as the size of the EMIs will be the same for the entire loan term.
Also, with fixed-rate mortgage loans, you don’t have to worry about market shifts and the consequent rise in interest rates. However, you also don’t benefit from the reduced interest rates from such shifts.
- Variable-rate mortgage loans
Variable-rate (or floating-rate) mortgages have an interest rate that fluctuates over time. These fluctuations usually come from movement in the rate quoted by the bank, which is influenced by the repo rate controlled by the Reserve Bank of India (RBI). If the repo rate drops, so does the interest rate and vice-versa.
So, if you’re certain that the economy is going to progress, you can get a floating-rate mortgage, as the interest rates will always be on the lower side. But remember, there’s an equal probability of the economy plummeting and interest rates shooting up. It would be best if you made a decision keeping both possibilities in mind.
- Adjustable-rate mortgage loans
Adjustable-rate mortgage (ARM) lies at the intersection of the twotypes of mortgage loans discussed above. For a certain initial period of the loan, you will have a fixed interest rate. It could be the first five, seven, or ten years.
After this period, the interest rate will change based on market dynamics and original loan terms. Also, this rate will keep changing, usually every six months. But that’s not concrete. ARMs come with a variety of adjustment intervals and lengths, and you can pick one according to your preferences.
The ARM rates change as per the index, which is a benchmark interest rate that reflects the market conditions. Lenders use this index, add their margin to it, and that’s the interest rate you have to pay. In case the index shoots up in response to a declining economy, your interest rate will significantly shoot up.
In some scenarios, these economic fluctuations can lead to a dangerous and unaffordable increase in interest rates. But the opposite is also possible.
Given the uncertainties associated with ARMs, they are best suited for people who are likely to move a lot, preferably before the initial fixed-rate period elapses.
So, these are some of the types of mortgage loans associated with interest rates. Choosing the right one will allow you to service your loans without financial headaches.
Mortgage Loan Types Based on Transaction Nature
- Simple Mortgage
In a simple mortgage loan, the lender reserves the right to sell the property if the borrower defaults. However, the ownership of the property isn’t transferred to the lender. Under such mortgage loans, the borrower has to sign an agreement granting the lender the right to sell.
- Mortgage by Conditional Sale
Under this type of mortgage loan, the lender has the right to put up conditions regarding repayment that the borrower must meet. These conditions usually outline clauses related to the sale of a house in case of non-repayment or delays in payment. Also, these conditions may include interest rate penalties due to regular delays in repayments or non-repayment.
- English Mortgage
Here, the borrower agrees to fully repay the mortgage loan on a certain date while transferring the ownership of the property to the lender. That said, the lender has to re-transfer the property to the borrower if the repayment is made in full by the specified date. In case of a default, the lender is allowed to sell the property and recover the debt through the proceeds.
- Usufructuary Mortgage
Lenders usually have the upper hand in this type of mortgage loan. Here, the borrowers need to transfer the possession of the property, along with the usage rights, to the lender. However, the borrowers still retain the ownership of the property or land.
The lender also has the right to put up the property on rent or enjoy the income from the produce generated by the property until the loan repayment is complete.
- Reverse mortgage
A reverse mortgage is a specialised home loan for senior citizens that lets them convert part of their home equity into cash without selling the property. Instead of making monthly payments, the homeowner receives funds from the lender through a lump sum, line of credit, or monthly disbursements. The loan is repaid only when the homeowner sells the property, permanently moves out, or passes away. While this can provide financial flexibility for seniors, it’s crucial to carefully evaluate the terms and conditions.
- Equitable mortgage
An equitable mortgage is a type of mortgage where you can pledge the property as collateral by simply handing over the title documents to the lender. In case of a loan default, the lender has the equitable right to sell the property to recover the amount. This type of mortgage is suitable in situations where a formal mortgage deed cannot be executed.
Choosing the right type of mortgage loan, in terms of the nature of the transaction, will allow you to better manage your assets without giving up too much control.
Major Mortgage Loan Types and Their Interest Rates in India
When planning to finance property or leverage existing assets, understanding the major mortgage types in India and their interest rates can help borrowers choose the right option. Here are the key offerings from lenders:
- Home Loans: Used to buy, build, or renovate residential property with interest rates typically around 8.5 to 9 per cent per annum, available in fixed or floating options from the lender.
- Loan Against Property (LAP): Borrowers can use existing property as security for funds for personal or business needs, usually at interest rates of 9 to 12 per cent per annum with flexible rate structures.
- Reverse Mortgage Loans: Designed for senior citizens to convert home equity into periodic income, with interest rates around 8 to 9 per cent per annum, mostly floating.
- Commercial Property Loans: For buying or constructing commercial spaces, these loans carry interest rates roughly 9 to 12 per cent per annum, suited for business purposes with fixed or floating rates.
These kinds of mortgages help borrowers match financial goals with suitable interest rate structures and lender terms.
Key Considerations Before Applying for a Mortgage Loan
Before applying for a mortgage loan in India, it is essential to consider several factors to make an informed decision and ensure financial comfort:
- Assess Financial Health: Review your income stability, existing debts, and monthly expenses to ensure EMIs are manageable and your budget remains balanced.
- Credit Score Matters: A good credit score enhances loan eligibility and helps secure favourable interest rates from the lender.
- Understand Interest Rates and Fees: Compare fixed and floating rate options, and account for processing charges, legal costs, and other expenses affecting total loan outgo.
- Loan Tenure and EMIs: Select a repayment tenure that balances monthly instalments with total interest payable.
- Property and Down Payment: Know the property type, value, and required down payment, as this influences lender financing.
- Know types of mortgage in India: Understand available loan products to choose one suited to your financial goals.
Thoughtful planning and careful comparison of lender offerings can make your home loan journey smoother and more rewarding.
Also, read –Step By Step Loan Against Property Process
Benefits of Different Types of Mortgage Loans
When considering property financing, it is important to understand the advantages offered by different mortgage types. These benefits not only make borrowing easier but also help you plan your finances effectively.
- Enhanced Buying Power - Mortgage loans allow you to access substantial funds against property value, making homeownership or asset financing possible without waiting to save the full amount.
- Lower Interest Costs - Because these loans are secured by property, lenders offer more competitive interest rates than unsecured credit, lowering overall financing costs.
- Builds Equity Over Time - As you repay the loan, your ownership stake in the property increases, creating long-term financial value.
- Flexible Repayment Tenure - Long repayment periods help spread EMIs affordably across years, supporting better monthly cash flow management.
- Multipurpose Use of Funds - Loans against property can be used beyond housing needs, such as business expansion, education, or medical expenses, offering versatile financing through mortgage loan products.
These benefits make choosing the right mortgage option a strategic step in achieving your financial goals.
How to Apply for a Mortgage Loan in India
- Check Eligibility and Research - Begin by evaluating your income stability, credit score, and property goals, and compare offers from multiple lenders to find the right fit.
- Select the Right Product - Choose from available different types of home loans that align with your financial situation and repayment capacity.
- Gather Required Documents - Prepare identity, income, address, and property proofs to support your application and speed up verification.
- Submit Application - Apply online via the lender’s portal or visit a branch to fill in your details and upload documents securely.
- Verification and Approval - The lender will verify your information, assess creditworthiness, and conduct property checks before issuing a sanction letter with terms.
- Loan Disbursal - Once legal and technical checks are complete, the loan is disbursed as per your agreement, helping you move forward with your property plans.
Careful preparation and clear communication with your lender can make the process faster and smoother.
Also, read – Top 10 home loan benefits you should know in India
Understanding Mortgage Loan Fees and Charges in India
Here are the key fees and charges you should understand when taking a mortgage loan in India to help you plan costs clearly and avoid surprises:
- Processing Fee - A one-time charge by the lender to evaluate and process your application, often a percentage of the loan amount. Godrej Capital
- Legal and Valuation Charges - Fees for property document checks and professional valuation to confirm market value and title clarity. Godrej Capital
- Prepayment or Foreclosure Fee - Some lenders may apply a charge if you repay part or all of the loan before the agreed tenure ends. Godrej Capital
- Late Payment Fee - Penalty applied when EMIs are paid after the due date, encouraging disciplined repayments. Godrej Capital
- Government Charges – Stamp duty and registration fees payable to the state authority when registering the property and loan. Godrej Capital
Understanding these elements alongside types of mortgage in India can help you compare lender offers and estimate the total cost accurately.
Comparison Between Mortgage Types: Which is Right for You?
Before choosing between types of mortgages, it helps to compare key features so you can decide which suits your goals and financial profile:
- Home Loan - Best if your primary aim is purchasing or building a home with longer repayment tenure and generally lower interest rates from the lender.
- Loan Against Property - Ideal for those needing funds for business or personal use by leveraging existing property, though it usually attracts slightly higher interest and shorter tenure.
- Reverse Mortgage - Useful for senior homeowners who want regular cash flow without moving out, repaid when the property is sold or vacated. Godrej Capital
Understanding these types of mortgages ensures you choose an option that aligns with your funding needs, repayment comfort, and long-term financial planning.
Also, read – Understanding home loan settlement
Conclusion
Now that you’re aware of the various types of loans for mortgage available for homebuying, you can make an informed borrowing decision keeping your finances in mind. Remember that the eligibility criteria and approval process vary between lenders.
So, conduct thorough research, shop around, and compare the loan terms offered by different lenders to find the option that suits you the best.
Or, you could just opt for Tata Capital’s housing loan and cut short your purchase process. Apart from our attractive interest rates, we offer flexible repayment options, fast loan processing, and customer service that is always there to help.
All in all, we help you get to your dream home quickly without the associated financial worries.
FAQs
Many people cannot afford to buy a home outright. Securing a mortgage can help them spread the cost over several years, making homeownership more accessible and affordable.
A fixed-rate mortgage has a constant interest rate for the loan term. A variable-rate mortgage, on the other hand, fluctuates based on market interest rates, affecting monthly payments.
The two main types of mortgages are fixed-rate mortgages and variable rate mortgages.
A mortgage is a loan secured by real estate. Whereas a home loan is a broader term for loans used specifically to buy a house.
Depending on their policies, some lenders may offer self-employed mortgages that consider alternative income proof, such as tax returns, bank statements, or business financials, instead of traditional salary slips.
Indian law recognises six mortgages, simple, usufructuary, English, mortgage by conditional sale, equitable, and anomalous, commonly referenced by lenders including the best NBFC for loan against property.
There are six legally recognised mortgage deeds in India, each defining ownership rights, possession terms, and repayment structure, often evaluated carefully by an NBFC providing loan against property.
Fixed rate mortgages offer stable EMIs throughout tenure, while floating rates vary with market conditions, influencing long term interest costs under a loan against property from NBFC.
Yes, NRIs can avail mortgage loans in India, subject to eligibility, property location, income proof, and lender policies, with repayment typically routed through NRE or NRO accounts.
Mortgage loans offer tax benefits on interest and principal repayments under applicable sections of the Income Tax Act, depending on property use and borrower eligibility.
Yes, collateral is mandatory for mortgage loans, as property security enables lenders to offer lower interest rates, higher loan amounts, and longer repayment tenures.
Indian law recognises six mortgages, simple, usufructuary, English, mortgage by conditional sale, equitable, and anomalous, commonly referenced by lenders including the best NBFC for loan against property.
There are six legally recognised mortgage deeds in India, each defining ownership rights, possession terms, and repayment structure, often evaluated carefully by an NBFC providing loan against property.
Yes, collateral is mandatory for mortgage loans, as property security enables lenders to offer lower interest rates, higher loan amounts, and longer repayment tenures.
06 January 2026
12 mins read
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