Loans have become a convenient financial solution for funding any sort of requirements, whether personal or professional. Whether it is for purchasing a new house, car, to pay for your children’s education or for any other purpose, you can find a loan tailor-made just to suit your requirements. While there are a range of loans in the market like personal loans, gold loans, wedding loans etc, many are unaware about loan against property (LAP). Do you know what this loan is all about? Find out:

What Is Loan Against Property?

As the name suggests, loan against property is a loan granted against the value of a property either owned by the applicant or his guarantor which is typically parents. This property is mortgaged, which essentially means, papers for the property and its legal ownership reside with the bank, unless the loan is cleared.

Features of a Mortgage Loan

A loan against property has some distinct features which vary from other loans.

# It is considered as a secured loan as it is granted against the value of an immovable asset like a property.

# The purpose of the loan can be for both personal or business funding.

# The maximum amount that can be disbursed against the property ranges between 60% and 80% of the latest market value of the property. This ratio is called the loan to value ratio.

# The property must be on your name or your co-applicant’s name to avail the loan. It can be a residential or a commercial one, but commercial properties go through more scrutinised checks.

# Interest rates are low as the property is mortgaged as security under the loan. This reduces the risk of default faced by the lender.

# Banks allow a long repayment tenure which can stretch up to 15 years.

# Vacant plots of land can also be mortgaged to avail the loan along with any rented out residential property.

Eligibility for the Loan

Although the main criteria for the loan is to have the property in the applicant’s name, there are some other eligibility requirements that most banks demand. These are:

# You need to be an employed individual.

# Minimum age limit ranges between 23 and 25 years and the maximum age for repayment is limited to 65-70 years to ensure that you earn income to repay the loan.

# Your financial status, credit score and income are also gauged to determine your eligibility criteria.

Benefits of a Loan Against Property

Getting a loan against property is a better option rather than taking a personal or a gold loan if you own a property. Find out some reasons why this type of loan is better suited for high loan values:

# You can use your property to get a loan without transferring its ownership.

# The interest rates are much lower compared to personal loans.

# Since the value of property is substantial, you can get a higher quantum of loan as compared to personal loans where your income determines the final loan amount.

# The repayment tenure is longer, therefore giving you more time to pay back.

Points of Caution

While a loan against property allows you easy finance, there are some points which you should remember before applying for the loan. These include the following:

# If the property is in the name of more than one individual, all individuals would have to act as joint borrowers or co-applicants

# Lenders factor in the market value of the property, its age and overall condition before fixing the loan amount

# If the property is mortgaged under the loan, you cannot sell it off before paying off the outstanding loan

# In case of defaults in repayment of the loan, the lender has the right to confiscate your property, sell it and realize the outstanding loan subject to the authorised jurisdiction.

Weighing Your Options

Giving your property as mortgage should take some consideration, and given the choice of lenders in the market today, make sure to research and weigh your options before you zero in on the final lender. Different lenders offer different loan to value ratio. So try to choose the highest one to get the maximum value of the loan. Look at the interest rate too to avail the lowest rate and the lowest EMI.

(The writer is CEO at Bankbazaar.com)