What is Loan against property?
As the name suggests loan against property (LAP), is the loan that you avail by keeping your property as mortgage with the bank. The loan is given as a certain percentage of the market value of the property. Generally banks lend up to 50% to 60% of the value of the property.
As your property is kept as collateral with the bank, it is a secured loan. In case you fail to repay the loan, the lender has the right to auction your property and recover the money.
For what purpose you can take loan against property?
It can be used for any purpose other than speculative. You can use it to
- Fund your child’s education abroad
- For funding any medical emergency
- Wedding of your child
- Funding the dream vacation
- Business expansion
What are the various benefits of LAP?
- Lower interest rate: – As the loan is taken keeping the property as collateral, the rate of interest is generally lower when compared to personal loan. Loan against property interest rates generally ranges between 12% and 15% while in case of personal loan the interest rate ranges is 15% to 25%
- Lower to no prepayment charges: – You can close your loan against property by making prepayments towards your loan. Lenders generally don’t charge prepayment charges in case of loan against property.
- Easy to get: – As these are secured loans, banks are more than willing to provide these loans. Therefore, you won’t find it very difficult to get the property loan.
- Longer tenure: – These loans are generally available for longer tenure going up to 15 years while the tenure in case of personal loan is generally up to 7 years.
- Lower EMI: – There is an inverse relationship between tenure and EMI. Longer the tenure lower will be the EMI and vice versa. As these are available for longer tenure, these become suitable for people who can’t afford paying higher EMIs. However, it is always advisable that a person should take loan for the shortest tenure as the interest burden will be lower in case of short tenure loan.
What kind of property can be mortgaged?
You can mortgage a self-occupied house as well as a rented residential property or it can be a piece of land that you own. However, it is necessary that the property is free from any kind of mortgage of litigation. Basically the title of the property should be clear.
How does the lender decide the loan amount?
The lender takes into consideration many factors such as your income, age, spouse’s income value of property in consideration to decide on your loan. The lender generally provides loan up to 60% of the value of the property.