How the loan against property differs from the home purchase loan

The loan against property is a useful financial tool to use when you need access to money in a short while, without compromising the ownership of your property.

There are several reasons why people prefer to invest in property rather than other asset classes. The property becomes an immovable asset for yourself, and it helps you gain access to funds at short notice. Property is often quite liquid, and it is almost always an appreciating asset.

However, you don’t need to sell your house to monetise it. You can explore a better avenue, known as the mortgage loan or loan against property.

What is a loan against property?

  • Also known as a mortgage loan, this loan differs fundamentally from the house purchase loan, though most people think that the two are the same.
  • While a home purchase loan is taken to buy a house, the loan against property is taken to borrow money against the current market value of the property that you own. The property is the collateral in both cases.
  • However, the lending institution does not ask why you need to borrow the mortgage loan. The bank will check your loan eligibility, the current market value of the owned residential or commercial premises, your current income, credit history and whether there are any outstanding loans on the same property. You cannot get a loan against property if you are still repaying the home purchase loan on it.
  • In case of loan repayment defaults, the property is attached by the bank to recover its dues.

Loan against property: The best solution in case of a financial need

Having a property to your name opens the door for raising funds against it any time you wish. If the need is a big one, then your first impulse might be to sell the property and get a profusion of funds in your hands.

But selling the property means that you give it up entirely, including any rights to it. Once sold, it is out of your hands forever. The mortgage loan offers you a better option.

When you take a loan against property, the ownership and title rights are still yours, and the lending institution is only the lender without any stake in the property.

Do note that the mortgage loan interest rates are higher than those of house purchase loans.

Important points to know about the mortgage loan

  • The loan against property can fund a personal or professional need. It can pay for anything, from making a down payment on a new house to funding your child’s future education.
  • The bank offers a certain mortgage loan interest rate on the product. Look for a lower rate of interest, to make the loan more affordable.
  • The loan against property cannot be availed on homes which still have an outstanding home purchase loan against them.
  • Your mortgage loan eligibility increases if your credit history is clean. Make sure there are no unpaid loans/loan defaults before you apply, and that there is no pending legal dispute or claim on the property.

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