5 Things to Know Before Taking a Loan against Property

Loan against Property is a secured form of borrowing or getting credit. Here, you keep your property as a security with the bank and get a high-value loan at an attractive interest rate. Loan against properties also go by names like mortgage loans. The market for this type of loan has become very popular lately. By 2023, LAPs are expected to grow by 22% at least.

If you are in need of considerable funds but do not wish to part with your beloved property, getting a mortgage loan can be a very good choice. After all, who wants to sell off their home even in times of great financial need, right? Fortunately, banks have a very helpful service in the form of Loan against Property. In this service, basically you’ll be getting a loan in lieu of your property. It means the property shall be the bank’s collateral. If you repay your loan on time, you get your property ownership papers bank from your lender.

However, before taking an LAP or Loan against Property, there are 5 factors one needs to consider.

The loan amount you can get: Loan against property is still a loan against your land or property, no matter the loan is called. As such, it falls under the umbrella of other similar loans like land mortgage loan, home mortgage loan, loan against plot, and mortgage against agricultural land. The loan amount you get is actually a percentage of such properties’ market value.

The interest rate: On the whole, Loan against Property comes with a very affordable interest rate. This is because it is a form of secured loan. Your lender’s money, or loan, is back by a collateral. However, know that the interest rate can differ from one lender to the next. This is why one should shop around a bit before finalizing on any bank’s LAP. After picking a bank, you still need to decide on either floating interest rate or a fixed interest rate.

The repayment tenure and its EMIs: LAP’s are normally about a significant loan amount. After all, it is a credit line against the value of your property. Thus, banks give you enough time to repay such loans. Generally, the repayment term is 20 years. Depending on your lender, this term can be even more. However, since longer repayment terms mean more interest over the long term, it is more prudent to pick a shorter term.

Your tax benefits: Just like a reverse mortgage gives you some tax benefits, so does a mortgage loan. However, you still need to show that you’ll be using the funds for home improvement. You can get up to Rs. 2 lakh tax benefits under IT section 2B.

Foreclosure and prepayment fees: Most lenders charge for these. For if you want to foreclose the loan, or if you want to pre-pay it, there will be a price to pay for it. Generally, this is around 2% to 4% of the total loan amount.

What Is Loan Against Property ? - Things You Need To Know Before Taking Loan Against Property

A LAP or a Loan Against Property is a type of secured loan which banks, NBFCs and housing finance companies offer against commercial and residential property. Basically, you get a loan after giving over these properties as security.

One USP of these loans is that these are offered at a comparatively lower rate of interest as compared to other forms of personal loans and business loans. These are also provided within a time shorter than those loan types, which means that in the case of LAPs, you get your money faster.

If you have a pre-owned property, you can get this type of loan. It does not matter if you are self-employed or salaried. What is important is that you are the owner of the said pre-owned property. Yet another USP of this of a Loan Against Property is that the quantum of loan is higher in comparison to other options.

Did you know that the demand for Loan against Property is increasing?

Well, it is true. And here’s why!

• It is cheaper than personal loans
• Applicants can occupy and use the property even after getting the loan
• You can use the loan for emergencies, for fueling your business, for education, marriage and more.
  

LAP or a loan against property is truly a boon for both salaried people and for self-employed ones. Self-employed individuals who are seeking to boost or grow their business can get a Loan Against Property.

If you are salaried, you can similarly use it for anything as long as it is legal. For instance, you can use it for medical emergencies, for your child’s education, or just for raising funds. Here’s a big benefit of a LAP: it leaves your savings intact. Additionally, it comes with low-cost EMIs reasonable repayment tenures.

Repayment tenures are typically between 15 to 20 years, sometimes more. This may not seem like much, but the low interest mitigates the repayment burden.

As you can see, all the benefits are here to help you out, whether it is for your personal needs or for professional or business needs. The needs just have to be legal and legitimate!

If you are an existing customer at a bank, and want to get a Loan against Property from them, then it becomes easier. Banks favor existing customers. Besides, you don’t need to submit all your documents again since the bank already has copies and records of your important documents.

If you are not an existing customer, things you do have to furnish include evidence of repayment capacity, credit history, and the property’s market value.

Existing customers have yet another benefit: they can apply for top-up loans.

These have been the basic features of a Loan against Property. However, other aspects you need to know before getting a LAP include:

1.     Loan repayment: The loan amount you can get can be high, but you need to fulfill the criteria that you can actually repay it. You can repay it over 15 to 20 years, depending on the lender.
2.     Property’s value: In case of a Loan against Property, the value of the property is everything. The money you get depends on this. Before determining the loan amount, term and interest, the lender shall do a property appraisal. This depends on the property’s market value. Some like Housing Finance Companies give only 50% to 60% of the property’s value.
3.     Property ownership: The loan shall be given only when the lender is sure the property is indeed yours, and that it has a clean, marketable title. Besides, co-owners need to be a part of the loan and have to meet the necessary criteria.
4.     Loan tenure: LAPs have comparatively longer tenure than personal loans. Longer tenures translate to lower EMIS, and that brings the monthly repayment burden down.
5.     Capacity to repay: Loan shall be given after the evaluation of your ongoing loans, repayment history, savings, etc.