A loan against property (LAP) can be used to finance substantial costs, whether for personal or business use. This type of loan is an alternative to traditional financing and is designed for buyers who are unable to obtain a full loan due to income limitations or other credit constraints. The borrower’s deed of trust and/or title serves as security for the loan.

How does it work?

Lenders provide loans to borrowers on basis of collateral security of their property for a mortgage loan. The lender makes a loan to cover a portion of the purchase price and takes possession of the property. Those with poor credit or those who would otherwise be unable to obtain a conventional mortgage can benefit from this type of loan.

Though loans against property can be challenging and complicated, they provide several benefits for consumers looking for extra money viz reduced interest rates and less pre-closure costs.

Though it is one of the ways for availing of a loan, certain things are to be understood and kept in mind when you choose to avail of loans against property.

They are as follows:

Property Valuation

A loan against property is a type of loan that you can get in exchange for something like construction property or land. Your property is valued by a bank agent to see how much of a loan you can get. If you’re applying for a loan against property, you’ll need to look at how much the loan-to-value (LTV) is.

Ownership of Property

Before approving the loan, the bank must ensure that the property taken as collateral for the loan is not in dispute. If the property papers are unclear about the ownership of the property, then the bank may not approve the loan. In addition, if there is more than one owner of the property and not all of them agree to the loan, then the loan may not be approved.

Ability to Repay the Loan

The amount available for a property loan is quite large, so it is essential that the borrower fulfils the income criteria to avail of the loan. Furthermore, the bank has a high degree of confidence in the regular repayment of the EMI when the borrower has a high normal income. The bank has collateral to recover the loan amount, but the first and foremost priority is to get timely EMI repayments from the loan borrower.

Interest Rates

When a bank accepts a loan in exchange for collateral, they offer lower interest rates as compared to a personal loan. Personal loans do not need collateral.

Property interest rates are low, so the total amount to repay is low, and you can easily repay the loan.

Time Frame of Repayment

Most land or property loans are approved on the basis of a long-term contract. Usually, the repayment term of the loan is 4-6 years, but in the case of a land or property loan, the term can be extended to 8-10 years. The longer the tenure, the lower the EMIs and the loan repayments can be significantly reduced.

Conclusion

In general, a loan against property is an agreement that enables a lender to extend credit in return for a borrower’s temporary permission to borrow money secured by their property. This implies that you can borrow against the value of your property if you need money for a business or personal purpose.

FAQs

1. What is the maximum amount of loan that I can get on loan against the property?

Normally, banks offer a maximum loan amount of 60% to 80% of the market value of the property.

2. Is it possible to foreclose a loan against a property account?

Yes, it is possible to foreclose a loan against a property account by submitting a written request to the bank.

3. What properties are considered under this type of loan?

Residential property or shops or commercial buildings are considered as collateral under this type of loan.

4. How can I apply for a loan against property?

There are many ways to apply for a loan against property. Homeloan4U provides you with a loan guide to help you take the right decision.