What is Mortgage?, Mortgage Meaning in Banking
As per Section 58 of the Transfer of Property Act, 1882, Mortgage is the transfer of an interest in specific immovable property for the purpose of securing payment of money advanced by way of loan, existing or future debt or the performance of an engagement which may give rise to a pecuniary liability.
About Mortgage
- Mortgage is a charge created on immovable assets
- Immovable Assets include land, building or anything attached to earth
- The transferor is called a mortgagor
- The transferee a mortgagee
- The principal money and interest of which payment is secured for the time being is called the Mortgage Money
- The instrument (if any) by which the transfer is effected is called a Mortgage Deed
- Possession of the asset remain with the borrower
- Loan Period is longer
- Loan amount is comparatively higher
- Mortgage means passing the charge on the property to the lender as a security
What is Mortgage Loan?
Mortgage is an agreement between a borrower and a lender under which the lender has the right to take the borrower's property in the event of the borrower's inability to repay the loan amount plus interest. Mortgage loan is used to buy a home or to borrow money against the value of a home you own. By providing property as a collateral, borrower can avail favourable loan terms and can buy home. The property mortgaged acts as collateral until the borrower repays the loan fully. Repayment is made through equated monthly EMIs. Mortgage loans are also known as 'Loans against Property'.
How Mortgage Loan Works?
If a borrower avails a loan from the bank then he will have to repay the entire loan in a specified period which is called the "Loan Tenure". Suppose he takes the loan from the bank to buy a home for him. The loan amount which the bank will disburse will be the amount on which it will be charging interest. The borrower needs to repay the loan amount plus the interest that is charged over the years in the form of EMIs. By providing home bought out of the loan amount as a collateral, borrower can avail favourable loan terms and can buy home easily.
The interest which is charged on the home loan is floating and is calculated on a reducing balance basis. Each month the interest is charged on the reduced principal that is left over from the previous month. This remaining principal is called the 'Outstanding Loan'.
Here, the lending bank has the right to take the borrower's property in the event of his inability to repay the loan amount plus interest.