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If you have a home, shop, or even some land somewhere, you’re in possession of something very important—your property. All the same, do you know that you can use it to get large sums of money without selling it? That’s what a mortgage does. It makes it possible for one to obtain large sums of money by mortgaging one’s own house. There is no need to sell your property off.
Moreover, no sophisticated financial jargon is required here. Just simple information, which is practical for usage.
What’s a Loan Against Property?
LAP or simply Loan Against Property is a type of debt secured through real estate. The borrower offers their residential, commercial or industrial property as a collateral. In turn, the lender gives a certain sum of money depending on how much the property could cost when sold.
You retain ownership and continue using it after taking the loan; you just give the lender some kind of rights over it for security reasons. When you finish repaying the full amount plus interest, the property will completely return to you, thus becoming yours wholly again.
Why take a Loan Against Property?
It’s simple, really — you aren’t using your property, but it’s getting used to help you secure more funds. Instead of selling it or taking up high-interest personal loans, you can leverage such latent assets and borrow money at lower rates. There are some key reasons why many Indians opt for this option:
- Lower interest rates than unsecured loans like personal loans or credit cards.
- Longer tenure options, up to 15-20 years, depending on your repayment ability.
- Higher loan amounts are needed since the value of your property is high.
- You can continue owning your property while also meeting various needs with funds.
Real use cases
When you require a large amount of funds, this type of loan is ideal. Here are a few examples in India:
- University education for your children, either in India or abroad
- Business expansion or new project investments
- Wedding budgets
- To cater for medical treatments and emergencies
- Settling other debts that have high interests
How Much Can You Borrow from a LAP?
Up to 60% to 70% of the market value of your property may be taken as loan by most lenders within such a scheme. In other words, if your flat costs Rs.1 crore in value, then you might end up getting approximately Rs. 60 lakh to Rs. 70 lakhs in loans against it.
This will depend on:
- Type and location of the property
- Your income level and repayment capability
- Your age, along with occupational status
- Your credit score
How to Know Your Eligibility for a Loan Against Property?
There is no need to wait in long queues or visit offices. Simply check out loan eligibility calculators available online. Upon entering a few basic details like income, property value, etc., it will tell you an estimated figure that you can borrow as a loan.
Points to note
These are the things you should keep in mind before getting into any agreement regarding LAPs:
- You need an expert’s opinion on property valuation
- Do not borrow more than necessary. Remember that it’s a debt, not free money
- Carefully read all terms and conditions, looking for hidden charges, processing fees, and foreclosure policies
Weighing the Pros and Cons of a LAP
Let’s talk about the good things and then caution you against some.
Pros:
- Lower EMIs due to longer tenure
- Easy access to large amounts of money
- This money does not come with any restrictions – use it for whatever purpose
- Property can still be used while at the same time owning other things
Cons:
- In case you default, there is a possibility of losing your belongings
- It takes longer for unsecured loans to be processed than this option does
- Complete documentation is needed alongside property verification
The Bottom Line
If used wisely, this type of loan will change your life. Instead selling your assets you’ll keep them as collateral for raising some funds just in case there’s need. Nevertheless, always bear in mind that this is a big deal when it comes to money matters. Also, remember that EMI planning is crucial here not borrowing more than what one can afford.0
Let your property work for you. Utilize the property you sacrificed for long periods of time for yourself. If you’re unsure how much you can borrow, spend 2 minutes on a loan eligibility calculator. You can take a step towards it in a more informed manner. Good luck applying!