Loans: Need funds? You can opt for a loan against the property

If you own property and have an immediate financial need, such as a medical emergency, higher education, or home furnishings, a loan against property (LAP) may be a better option than an expensive personal loan. LAP can be used for any personal or professional need other than for speculative purposes. The lender will not ask for any supporting documentation of the end use of the funds.

While the loan to value ratio (LTV) would be 60-70% of the property, the maximum financing depends on your outstanding principal on all existing loans and the LAP used, the infrastructure around the property, the location and age of the property. While paying the EMI for the loan, you can continue to stay in the property. However, you cannot sell it until you have repaid the loan. In case of default, the lender can sell the property to recover the amount.

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Factors to keep in mind

Since the lender will offer you a percentage of the market value of the property, you need to know how much you need to borrow. Adhil Shetty, CEO of Bankbazaar.com, explains that the borrower should compare the interest rates charged by different lenders on the same loan amount. “Check the amount of the EMI on the chosen mandate. Some lenders may charge you to prepay and garnish your loan, and you may also have to pay loan processing fees and legal fees. Read the terms and conditions carefully,” he says.

Interest rates, processing fees, LTV ratio, repayment tenure, LAP disbursement time can vary significantly from lender to lender, depending on lenders credit risk policies and their credit risk assessment of LAP applicants based on their credit profile and ownership. Features.

Ratan Chaudhary, Head of Home Loans, Paisabazaar, says LAP applicants should compare the features offered by as many lenders as possible before applying to a particular lender. “As some lenders may offer preferential interest rates to their existing customers, start the process by contacting banks, housing finance companies or NBFCs where you already have a loan, credit card or deposit account “, he says.

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Some lenders charge lower interest rates to LAP applicants who leverage their independent residential properties compared to those who offer commercial properties as collateral. Again, some offer differential rates on the LAP depending on the repayment term or loan amount/LTV ratio required by the borrower. Also, since LAP terms are typically up to 15 years, with some up to 20 years, choose the loan term after considering your EMI repayment capacity. “Opting for a shorter term would lead to higher EMIs but at a lower interest cost, while a longer loan term would lead to smaller EMIs but incur higher interest charges,” says Chaudhary.

What do banks consider?

Before approving the loan, banks will perform mandatory due diligence on the property regarding government approvals, location, specifications, market value and existing loans. Once the banks have legally cleared the property, they will verify the borrower’s financial profile such as occupation, age, income, credit rating, etc. where the property is leased. However, property-related approvals can vary from state to state and property type to property,” says Shetty.

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* First contact banks, HFCs or NBFCs where you already have a loan, credit card or deposit account to get the best terms

* You must submit ownership documents, title deed including chain of ownership, proof of no encumbrances and approved plan

*Some lenders charge lower interest rates to applicants who operate their independent residential property than to those offering commercial property

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