Financial exigencies are a fact of life. They can strike anyone, anytime. Say, a medical procedure is on the cards. You need to raise funds quickly, but your credit card is maxed out. Worst still, your friends and relatives aren’t in a position to help. Loan against property is a good idea for anyone in your situation. Why? Well, that’s what we discuss here in detail.
What is a loan against property?
Loan against Property, LAP or mortgage loan involves mortgaging your property with the lender for a loan, and hence the names. Any self-owned or rental residential property, a plot of land or commercial premises, such as a shop, office, and warehouse, are eligible for a mortgage.
It’s a secured loan, which speaks for low-interest rates and easy eligibility and documentation requirements. The papers of the pledged property stay in the lender’s possession until the loan is paid off in full. But you are free to use the property as usual. The quantum of the loan depends on the pledged property’s current market value. The end-usage restrictions do not apply.
Why is it a good idea?
Now that you know what LAP is all about, let’s elaborate on why the loan type makes sense to fund any urgent requirement.
Interest rates decide the affordability of the loan. By that token, LAP is the most affordable loaning option, perhaps second only to a home loan. The loan against property interest rate is as low as 9%, subject to the lender and other factors like credit history, tenor, and more. The lender can put the collateral on the market for recovery in case of repayment default. As the risk for the lender is covered, you enjoy lower interest rates than in unsecured options like personal loans.
No usage restrictions:
A car loan is earmarked for a car purchase, a home loan for home purchase, and student loans for education, and so forth. Most loans are earmarked for a specific purpose but not LAP. Use the funds for a property purchase, business expansion, or urgent surgery; it’s your call. The lender is least bothered where the money is used unless you repay as per the schedule.
High Loan To Value:
Loan to Value (LTV) is the fund sanctioned against the value of your pledged property. The mortgage loan stands out here as well, offering up to 60 to 70% LTV, depending on the lender. It might run into crores if a high-end property is pledged. However, should the quantum of loan fall short of your fund requirement, the top-up facility is always there.
LAP represents easy loaning. The eligibility criteria are simple. Any Indian citizen, salaried or self-employed, aged above 18 years and having a property in his/her name is eligible. Equally simple are documentation requirements, including two passport size photographs, ID proof, address proof, and property documents. The lender might not even ask for any income proof.
LAP involves lengthy tenors, up to 15 years. That means you have enough time to repay the debt without straining your monthly budget. However, you can always repay the loan whenever you have surplus funds to restrict the loan against the property interest rate.