Loan against property: What you need to know

Financial downfalls are unwanted guests in our lives. While many of us save and invest money regularly and dream of next vacation abroad or buying a car by the time of investment returns, a sudden financial crisis can hold back or even cancel these plans. During difficult times many people turn to their friends and family for a loan. How do you handle your financial crisis? The financial experts suggest a better and safer option: loan against property.

Benefits of LAP also known as mortgage loan are longer tenures, lower mortgage loan interest rates and large loan amount. However, before going further, read out the below points and know everything about loan against property.

  • Property Evaluation

Borrowers can apply for a loan against their self-occupied property or rented property as long as they are the legal owner of the property. You can apply for the loan against a residential property, commercial property or land.

Once you apply for the mortgage loan, the lending bank or financial institution sends an appraiser to calculate the market value of your property. The age and overall condition of the property play an important role while deciding its market value. Financial institutes other than banks only sanction 40-60% amount of total property value.

  • Interest rate and EMIs

Mortgage loan interest rates vary from lender to lender. Many lending institutions offer 12-15% rate of interest per annum. You can avail LAP for a tenure of 10-15 years. You can also choose between the overdraft and lump sum options as your method of repaying the loan amount.

  • LAP criteria

Whether you are eligible for a loan against property totally depends on the LAP eligibility criteria set by the banks and lending institutions. Although these criteria vary from bank to bank every bank and financial institution looks for some common factors, which are:

  • Borrower’s income, savings, and repayment track record
    • Employment status
    • Financial standing
    • Borrower’s age
    • Credit score

Most lenders prefer if the borrower repays the debt while they are still employed. That’s why you can see the tenure set up to 60 years for employees and 70 years for self-employed borrowers in India.

  • LTV (loan-to-value ratio)

Loan-to-value ratio decides how much loan you’ll be getting against your property’s market value. LTV percentage differs from bank to bank. Government banks in India sanction 65% LTV, while if you go to private banks you may get up to 75% of your property value as a loan.

Well, how exactly LTV is decided? Banks and financial institutes have their policies and internal rules set out on how the property should be evaluated, which is one of the deciding factors in LTV.

Now that you’ve decided to take the loan against property, you still need to know about how much EMI you’ll be paying and the documents required applying for a mortgage loan. Most banks and financial institutes have online EMI calculators on their websites and apps where you can fill out your loan amount, total tenure, and mortgage loan interest rate and get the idea of EMI you need to pay to nil your debt.

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