Loan Against Property is a secured loan and taken on the market value of the property. It is a method of generating funds at a lower cost. However, the property will be provided as security against the loan. The tenure of the loan can be extended to 15 years. Loan against property is offered by banks and financial institutions. However, the loan is available against the residential property and the commercial property as well. Other conditions and requirements can be imposed by the lender. However, the terms and conditions differ from bank to bank.

The process to avail loan against property

Submit the application

  • The applicant must be the owner of the property. However, not all co-applicants need to be the owner of the property.
  • The application for the loan against property should be submitted to the bank.
  • However, it is necessary to pay the processing fees along with the application.
  • However, the processing fees depend upon the amount of the loan.

Check your eligibility criteria

  • To get the loan against property, it is necessary to check the eligibility criteria
    • Applicant should have a good source of income
    • Applicant must have stability in his job
    • He should have a good credit score.
    • Also, he must have a positive bank statement.
    • The value of the property plays an important role while taking the loan against property.

Submit all the required documents to the bank

  • After fulfilling the eligibility criteria the borrower has to submit the all required documents to the bank
  • The borrower has to submit
    • The address proof
    • Job letter
    • Statement of the bank, etc
  • Provided that nothing shall be concealed off and no document should contain any false information.

Determine the percentage and structure of EMI

  • After the completion of all the above procedure determine the percentage of the EMI
  • Determine the tenure of your loan.
  • Terms and conditions of prepayments
  • Other terms and conditions, etc
  • However, before signing any document please go through them carefully.

Disbursement of the loan amount

  • It is pertinent to mention that the lender carries out
    • Credit appraisal
    • Technical appraisal, and
    • Legal appraisal of the property before sanctioning the loan amount and disbursement of the loan.

Repayment of the loan amount

  • The repayment is done through the decided percentage of EMI.
  • However, the borrower can make the part payment or prepayment of the loan to reduce the EMI or tenure of the loan.

Essentials of loan against property

  • Among a host of loan options that are provided by banks, a relatively popular loan among the loans offered is the Loan against property or mortgage.
  • The loan clicks easily with the borrowers. Because it generally allows one to borrow a relatively large sum of money for any kind of need.
  • It also generally has
    • An easy documentation
    • Speedy approvals, and
    • Flexible repayment options
  • According to the Transfer of Property Act, 1882,
    • A mortgage, which is essential in availing a loan against property is “the process of the transfer of an interest in the specific immovable property to secure the payment of money.
    • Which is thus advanced or it is to be advanced by a way of loan.
    • And also to the existing or the future debt or the performance of an engagement which thus may also give rise to a pecuniary liability.
  • This means that one can apply for a loan from a bank by extending the property as collateral or as security.
  • However, as the definition states that mortgage only involves “transfer of interest” and the ownership of the property which remains with the borrower.
  • Ownership thus transfers to the bank only in the event of default on the loan.
  • Loan against property or a mortgage is popular because it has some of the perceptible benefits.
  • Higher loan amounts are also generally available for the longest tenure when it is compared to the convent.

Benefits of loan against property

  • It is more beneficial when the borrowers avail larger amounts.
  • The of loan tenure is longer, which means that there will be a lower EMI
  • It is a Good tool for debt consolidation.
  • Funds can be used for
    • Business needs, as well as
    • Personal needs
  • To fulfill the eligibility criteria banks generally demand
    • Proof of residence
    • Proof of identity
    • Latest Bank Statement where one can show a salary/income for the past 6 months
    • A salary slip if employed, and
    • Relevant copies that are related to the concerned property which the borrower wants to pledge.
  • Loan eligibility usually depends on the borrower’s credit rating along with the factors like
    • Income
    • Age
    • Qualification
    • The number of dependents
    • Spouse’s income (if any)
    • Assets and liabilities, and
    • The continuity of occupation.
  • The borrower can often choose between the fixed and floating rate of interest. And it is generally an option for the part and prepayment of the loan.
  • However, the loan that is extended to the borrower is based on the market price of the property that is pledged.
  • What is important to keep in mind is that a bank always holds a certain amount of margin money. It generally extends a maximum of 60% to 70% of the market value of the property.
  • This ensures that the banks are protected against any kind of cyclical fluctuations in the real estate market and also for the drop in prices.

Who should opt loan against property?

  • Mortgage or loan against property is particularly popular when it comes to the needing for money for the business.
  • While there is no restriction on using it for personal needs. But if the amount is small, then taking a personal loan makes more sense.
  • While people use loans against property for education and also even to buy or build a second property. Then most mortgage loans are taken for business purposes.
  • This is especially helpful if the business needs emergency cash at lucrative interest rates.
  • Therefore it is always risky to put the property of the borrower at stake.
  • This form of loan is also not advisable if the borrower is starting the business.
  • Loan against property thus should not be used as a form of risk capital. However, it should be used when the borrower knows that he would be able to service the loan or to repay it before the stipulated period.

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