Loan against property is a type of secured loan. Availing loans by pledging your property as a security or collateral with a lender is called mortgaging or loan against property. Loans against property are a viable option, especially when the property rates are appreciating. The rate of interest on loan against property is low as they are secured loans. With loans against property, you get funds with not having to sell a property. Your property documents would be handed over to you on repaying the loan in full.
You are allowed to pledge residential properties, commercial properties and even a piece of land to avail loans against property. The main advantage of availing loans against property is that the funds received can be utilized for any purpose; there are no restrictions as such like in home loans where the funds can be utilized only on housing related activities. This factor coupled with low interest rates; results in loan against property being a preferred option over personal loans.
The first question that would arise when applying for a loan is ‘what is the amount that I would receive as loan?’ Generally, lenders offer up to 60% of the property’s market value as a loan against property. This percentage is referred to as the loan to value ratio, LTV. The maximum tenure for repayment of LAP is 10 years. The rate of interest offered on LAP would be higher than that of home loans but lower than that of personal loans. The repayment tenure of 10 years offered on LAPs is much longer than the tenure offered on personal loans which is likely to be up to 5 years.
The combination of low interest rate and long repayment tenure results in low EMI payable and hence makes LAPs a more attractive option than a personal loan. The funds received as LAP can be used for short term financial requirements like a marriage, tuition fees, hospital expenses, expansion of business, going on a vacation and so on. Few lenders offer LAPs for up to 15 years which makes it even more comfortable for the customer to repay as EMIs would be low. Loan against property are issued to both salaried and self employed applicants.
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SEE ALSO: What Is Loan Against Property?
The eligibility criteria for loan against property are different when compared to that of unsecured loans (personal loans) as an individual’s income shall decide the eligible loan amount in the latter case. While the eligibility criteria for loan against property vary on the basis of lenders, there are certain general parameters that are considered. The general eligibility criteria include the applicant’s income and property’s market rate. Few lenders also consider credit repayment track record as a factor. This repayment track record involves credit card bill payment, previous loans and so on. The market value of the property is the most important factor taken into consideration.
Apart from these, the applicant’s status of employment, age and financial stability are also considered while sanctioning the loan amount. Generally, lenders prefer those customers that continue to work until the loan is repaid in full. This is the reason why maximum age at maturity of loan against property for a salary earning individual is capped at 60 years (this is the retirement age in India followed by most organizations). However, for businessmen and self employed individuals, the age at maturity can be higher, say about 65 years.
Apart from the application form, identity proof and address proof, you must submit ownership documents of the property as well. Latest property evaluation report may also be required. You must ensure that all the information furnished are accurate and authenticate. Furnishing fake details would result in immediate rejection of loan application and criminal charges may be filed. Below mentioned is the list of important documents to submit to avail loan against property:
Following are some of the vital documents required if you are a self employed individual or businessman
The below table shows the different types of loans against property:
Once the complete verification of all the submitted documents is done and if concluded that he or she meets the eligibility criteria, then the lender would process the loan application. Generally, a field visit to the property being pledged is also done so as to assess the current market value.
Usually the repayment period for loan against property ranges between 8 to 15 years. In a few cases, borrowers might have to pay penalties on prepayment and foreclosure. Prepayment and foreclosure charges depend on the kind of interest rate chosen.
Apart from the applicable interest rate on the loan, the lenders also charge a processing fee and stamp duty for the mortgage. You may also be charged for property evaluation. Most lenders have outsourced the process of property evaluation. The evaluation fee is directly payable to the evaluator in such cases.
SEE ALSO: Types of Loan Against Property
The loan against property would be sanctioned, after all legal formalities and paperwork is completed. Depending on the quantum of loan, it can be disbursed in multiple stages as per the borrower’s requirements. Generally, loans against property are disbursed in two to three installments.
During the loan repayment, if the customer finds a lender with better loan terms and conditions, then the borrower is allowed the option of transferring the loan from the existing lender to the new one. This process is called loan balance transfer.
Loan balance transfer might attract certain additional charges like processing fee involved in this process. It is foolish not to calculate all costs involved in the process of loan transfer. This is because with prepayment charges payable to the existing lender and processing fees payable to the new lender, you may not have any real savings.
To conclude, loans against property are surely one of the most preferred options to choose, when you need a high quantum of funds over a short period. It is quite obvious that you must ensure that the loan is repaid on time, failing to do so will result in the lender taking the extreme step of liquidating the pledged property to recover dues and the lender has all rights to take possession of the mortgaged property.
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