Property is a valuable asset that provides you with a place to live for the rest of your life. But it also serves as a lifeline in difficult times. A property owner in need of cash, for example, does not need to seek costly personal loans. Instead, he or she can take out a loan against property (LAP) to get by. A loan against property is a one-of-a-kind financial tool that allows you to tap into the full monetary potential of your movable asset while still maintaining ownership.
What is a loan against property?
In India’s housing finance world, a Loan Against Property is a house loan that you take out against a property that you own. It has become a popular form of long-term loan in India. It is popular especially among the self-employed, because of the comparably longer tenure and cheaper interest rates.
The lending institution sends an appraiser to determine the market value of the land or home after receiving an application for a LAP loan. Non-banking financial companies and banks normally only approve a certain percentage of the property’s overall market value. It is usually 40-60%. Financiers consider the property’s age and overall condition before coming up with a final figure. To ensure that the loan is authorized, make sure the property is clear of prior liens and that the applicant owns it entirely.
Features and Benefits
Low-interest rate:
Secured loans often carry a lower interest rate than unsecured loans. Furthermore, having a strong credit score and credit history increases your chances of acquiring a low-interest loan.
Simple documentation and approval process:
When it comes to a loan against a property, the documentation and approval process is usually straightforward. In this scenario, the collateral is the property utilized to secure the loan. This allows lenders to move forward with a straightforward documentation process.
Flexibility in loan repayment:
The majority of real estate-backed loans offer a flexible repayment schedule. You may be able to get a loan payback period of up to 20 years depending on the lender you choose.
Costs:
There may be a processing fee, mortgage stamp duty, and other expenses in addition to the interest rate on the loan, depending on the lender.
Continuous ownership of the property:
The borrower retains ownership of the property when taking out a loan against it. When you use your property as collateral for a loan, you keep ownership of it. If you are unable to repay the loan, you will have the option to sell the property.
Pre-closure option:
If you want to, you can pre-close your loan against the property. If the loan you got has a variable interest rate, you won’t have to pay any penalties if you close it early. You will be needed to pay a minimal amount if your loan has a fixed interest rate.
Optimal property documentation:
You will be able to meet your financial needs with a loan amount equivalent to the value of the property if you acquire a loan and have a property to present as collateral. You will be able to keep your home at the same time. You don’t have to sell your home to receive enough money to fulfill your demands, and you can get it at a low-interest rate.
Eligibility Criteria of LAP
The borrower’s income, debts, savings, repayment track record (for credit cards, past loans, etc.), and the market value of the mortgaged property are some of the common characteristics that all banks assess. Aside from that, there are factors that play a role in establishing the loan amount. This includes the borrower’s employment position, age, financial situation, and credit score, etc. The maximum age for the maturity of a LAP for a salaried individual is established at 60 years (retirement age in India). For self-employed individuals, the age limit is set at 70 years. Lenders prefer that the borrower pay off the debt while still employed.
Interest rate, tenure, and EMIs
Depending on the lender, the annual interest rate on a LAP might range from 9 to 15%. A loan secured by real estate might have a term of 7 to 15 years. A lump sum or an overdraft facility are also options for the borrower. Most financial institutions have an online loan against property eligibility calculator that you may use to figure out your exact EMI amount based on your loan payback plan.
When the real estate market is booming, a loan against property is one of the finest ways to get money. If the borrower is unable to repay the loan in full and on time, the financial institution has the authority to seize the mortgaged property. Then they can sell it at auction to recoup the debt. Payback defaults, like any other loan, have a negative impact on the borrower’s credit/CIBIL score, as well as the penalty, levied on loan repayment. Before taking out a loan against property, it’s a good idea to examine one’s ability to repay. You have to make sure you’re aware of all the terms and conditions.
