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28 Jul 2025

What is a Mortgage Loan? Meaning, Process & Eligibility Explained

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A mortgage loan is money borrowed by using your property as security for the lender.

If you can’t repay, the lender can take and sell your property to recover the money.

Want to buy a house but don’t have enough money saved? That’s where a mortgage loan can help.

Let’s understand it with an example:

Ravi wants to buy a house that costs ₹50,00,000. He has ₹10,00,000 saved, but still needs ₹40,00,000. So, he goes to the bank and takes a mortgage loan of ₹40,00,000 at 8% interest for 20 years.

His monthly EMI is around ₹33,458. This way, Ravi gets to live in his dream home now and pays the bank back slowly every month.

But if Ravi stops paying the EMIs, the bank can take the house and sell it to get back the money.

This is how a mortgage loan works. Now let’s understand more about what it is, how to get one, and who can apply for it, simply!

This blog will help you understand more about mortgages loans and its eligibility and process.

What is a Mortgage Loan?

A mortgage loan is money you borrow from a bank by promising to use your house. If you don’t repay, the bank can take and sell your house to get its money back.

Let’s understand it with the help of an example:

Read More - Home Loan Interest Rate Comparison

Let’s say Ravi wants to buy a house that costs ₹50,00,000. But he only has ₹10,00,000 saved.

He approaches a bank and takes a mortgage loan of ₹40,00,000. The bank gives him the money, and in return, Ravi agrees to repay it over 20 years with interest.

Suppose the interest rate is 8% per year. The bank tells Ravi to pay about ₹33,458 every month for 20 years.

Ravi lives in the house while paying the loan. But if Ravi stops paying the EMI, the bank can take back the house and sell it to get the ₹40,00,000 (plus interest) they gave him.

So in short:

The bank gives money to help buy a house.
Ravi repays in EMIs.
If he doesn't repay, the bank can sell the house.

What Are The Key Features of a Mortgage Loan?

Here’s a simple breakdown of the key features of a mortgage loan, explained with a practical example for a ₹50,00,000 property. This will help you understand how mortgage loans work in real life.

Feature	Description	Example (₹50,00,000 Property)
Collateral	The property you buy is used as security for the loan.	The house itself is the collateral.
Loan Amount	Usually, 70–80% of the property value is given as a loan.	₹40,00,000 loan on a ₹50,00,000 house (80% LTV).
Interest Rate	Lower than unsecured loans; can be fixed or variable.	Fixed at 8% per annum.
Repayment Tenure	Long repayment period for easier EMIs.	20 years (240 months).
Monthly EMI	Monthly payment that includes principal + interest.	Approx. ₹33,458 per month.
Loan-to-Value (LTV)	Ratio of loan amount to property value.	₹40,00,000 ÷ ₹50,00,000 = 80% LTV.
Types of Mortgages	Based on interest type or property type.	Fixed interest, Residential property loan.
Flexible Repayment	Some banks allow part-prepayment or balance transfers.	Ravi prepays ₹5,00,000 after 5 years to reduce EMI/tenure.

These features make mortgage loans a structured and flexible way to finance your dream property, offering long-term affordability and security for both borrowers and lenders.

What Is The Mortgage Loan Process?

Here’s a step-by-step explanation of the mortgage loan process. Let's say Ravi wants to buy a house worth ₹50,00,000 but only has ₹10,00,000 in savings.

Step	Explanation	Ravi’s Example (₹50,00,000 Property)
1. Assess Affordability & Get Pre-Approved	Ravi checks how much loan he can afford to repay based on his income and expenses. He gets pre-approved by a bank after submitting income proof.	Ravi earns ₹80,000/month and is pre-approved for a ₹40,00,000 loan with 8% interest for 20 years.
2. Find a Property & Make an Offer	Ravi searches for a house within his budget and makes an offer.	Ravi finds a flat for ₹50,00,000. Seller accepts the offer.
3. Apply for a Mortgage	Ravi submits a formal loan application with property details and documents like payslips, bank statements, etc.	Ravi gives the bank his ID, salary slips, ITR, and property papers.
4. Loan Processing & Underwriting	The bank checks Ravi’s credit score, verifies his income, and gets the property appraised.	The bank confirms Ravi’s CIBIL score is 750+ and the house is worth ₹50,00,000.
5. Receive Loan Approval & Disclosure	If everything is fine, the bank issues a sanction letter and shares all loan terms (EMI, interest rate, tenure, etc.).	Bank approves ₹40,00,000 at 8% interest for 20 years. Monthly EMI = approx. ₹33,458.
6. Loan Closing & Disbursement	Ravi signs the loan documents, pays processing and legal fees, and the loan amount is sent to the seller.	Ravi pays ₹10 lakhs from his savings + ₹1,00,000 in fees. The bank gives ₹40,00,000 directly to the seller.
7. Repayment Begins	Ravi starts paying EMIs every month for 20 years. If he misses payments, the bank can seize the house.	Ravi pays ₹33,458/month for 240 months. If he defaults, the bank can sell his house to recover the loan.

What Is The Eligibility Criteria for Mortgage Loans?

Before applying for a mortgage loan, it’s important to understand the eligibility criteria lenders use to assess your financial stability and repayment capacity. Here’s a breakdown of the key requirements:

Criteria	Details
1. Age	Minimum: 18 years (some lenders may require 21) Maximum: Usually 60–65 years (retirement age)
2. Income & Employment	Stable Income: Required for both salaried and self-employed Salaried: Consistent job history with a reputed employer Self-employed: At least 2–3 years of proven business income Minimum Income: Varies by lender, loan amount, and location
3. Credit Score	Ideal Score: 750+ (on a scale of 300–900) Credit History: No defaults, late payments, or negative records
4. Loan-to-Value (LTV)	LTV Ratio: Loan amount vs. property value (e.g., 80% LTV means 20% down payment) Lower LTV (higher down payment) improves approval chances
5. Assets & Liabilities	Lenders assess total assets (savings, property, investments) and liabilities (existing EMIs, credit card debt)
6. FOIR (Fixed Obligations to Income Ratio)	Compares monthly obligations to monthly income Most lenders prefer FOIR below 40-50%
7. Property Value	The loan is based on the market value of the property being mortgaged
8. Purpose of Loan	The reason (purchase, construction, renovation, etc.) may affect approval terms

Meeting these criteria improves your chances of getting approved for a mortgage loan with favourable terms, helping you secure your dream property more confidently.

Also Read – Best Year to Take a Home Loan

What Are The Documents Required For Mortgage Loans?

To apply for a mortgage loan, applicants must provide specific documents that help lenders verify their identity, income, and property details.

Category	Document Type	Details
Salaried Individuals	Proof of Residence	Any one of: Ration Card, Telephone Bill, Electricity Bill, Voter's ID Card
	Proof of Identity	Any one of: Voter's ID Card, Employer's ID Card
	Bank Statement / Passbook	The latest statement showing the salary credited for the previous 6 months
	Salary Slips	Last 6 months' salary slips showing all deductions
	Form 16	For the previous 2 years
	Property Documents	Copies of all legal documents for the property to be pledged
Self-Employed Individuals	Certified Financial Statements	Financial statements for the previous 3 years
	Proof of Residence	Any one of: Ration Card, Telephone Bill, Electricity Bill, Voter's ID Card
	Proof of Identity	Any one of: Voter's ID Card, Employer's ID Card
	Bank Statement / Passbook	The latest statement showing income credited for the previous 6 months
	Property Documents	Copies of all legal documents for the property to be pledged

Submitting accurate and complete documents ensures a smooth and quicker loan approval process, whether you're salaried or self-employed.

Conclusion:

A mortgage loan helps you buy a house by borrowing money from a bank. You promise your property as security and repay the loan in small monthly payments. To get it, you need a steady income, good credit, and proper documents. If you don’t repay, the bank can take your house. So, plan well before applying.

FAQs:

Q1: What is the difference between a mortgage loan and a home loan?

A home loan is only for buying or building a house, while a mortgage loan can be used for any purpose by pledging property.

Q2: What is the meaning of the term loan in mortgage?

A term loan in mortgage means a fixed amount borrowed and repaid with interest over a set period.

Q3: Is a mortgage a debt?

Yes, a mortgage is a type of secured debt where your house is used as collateral until repaid.

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?

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