This loan is obtained by the way of hypothecating any asset or mortgaging the asset with the lending institute. The value of an asset or property should be enough to qualify the sanction of the loan amount as needed by the borrower. This type of loan is opted for when the amount required is considerably more and cannot be raised by the means of unsecured loans and the repayment period is comparatively more than 5 years. Generally the properties or assets having appreciating value in market are considered good for hypothecation or mortgage like Land, Residential or commercial premises etc.
The lending institutions follow the procedure of assessing or the valuating the property to ascertain its market & future value and also the authentication of ownership. The borrower cannot mortgage the property not owned by him or her. In that case the owner of the said property can be a co-borrower and share the liability towards repayment and settlement of the loan. This mortgaged or hypothecated property may be liquidated by the lending institute in case a borrower fails to settle the loan.
The interest rates are higher than Home Loan but cheaper than Personal Loans or Loans against Securities.
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