Loan Against Property: 6 Things You Must Know Aboutby Rudra Raghavan Financier
Financial setbacks are uninvited. These circumstances can derail your financial goals such as purchasing a house. So, how to arrange for cash during a crisis? You do not want to fall for the unpleasant option of borrowing loan from family and friends.
Without even considering the requirements and the financial position, you opt for a personal loan. But do you have enough finances to pay high-interest rate along with loan amount? This is where loan against property enters the picture.
What is a loan against property?
In LAP, banks and other financial institutions have ownership over your property until you repay the loan amount. A property loan comes at lower interest rates and longer repayment tenures. You remain the lawful owner of the property throughout the tenure and can pay at your pace, depending on your financial standing.
Loan against property is useful to fulfil short-term goals like children’s education, marriage, medical treatment, expanding the business, etc.
If you wish to avail of a loan against property, consider the following points:
- Property evaluation: You can take LAP against a self-occupied or residential property that has been rented out. You must be the owner of such properties. Real-estate properties such as a house, commercial property, or a piece of land qualify under LAP. Plus, if the property has multiple owners, all should jointly apply for LAP. Lenders sanction around 60-80 per cent of the amount based on the market value of the property. The lenders also consider the age and overall condition of the asset.
- Loan-to-value (LTV) ratio: It is imperative to compare the loan-to-value (LTV) ratio between different lending institutions. Private sector banks offer up to 75 per cent of property value as a loan while public banks offer up to 65 per cent. If you pledge the property as collateral, the LTV is lower than residential properties.
- Eligibility criteria: Some of the standard criteria that all financial institutions consider for a loan against property:
- Repayment track record (credit score)
- The market value of the property
- Employment status
- Financial standing
- Maximum age for salaried people is 60 years and 70 for self-employed professionals
- Interest rates, tenure, and EMI: LAP interest rates are competitive but highly dependent on your annual income. The tenure is anywhere between 10-15 years. The best way to calculate EMIs is to use the calculator that helps you understand your monthly spending towards the loan. You will know how much amount goes towards the interest and how much towards the amount.
- Documentation process: The documents vary for salaried and self-employed professionals. Some of the basics are:
- Application form attached with your photograph
- Valid ID proofs like PAN card, passport, driving license, voter’s ID
- Current address proof
- Latest salary slips, the business existence proof
- Form 16 and last 3 years IT returns
- Past 3 balance sheet
- Last 6 months bank statement
- Processing fee cheque
- Tax benefits: Property loan offers no tax exemptions. The liability of interest payments begins as soon as the financial institution disburses the loan. The processing time is long since it requires plenty of verifications.
Loan against property is the best way to raise money, especially in the bullish market. If you fail to repay the amount on time, the lenders take possession of the property and auction it off.
Created on Mar 1st 2019 08:16. Viewed 501 times.