Demystifying 3 common misconceptions about Loan against home.

Posted by Anurag Mishra on July 27th, 2017

Do you want to get your hands on a large amount of money quickly? Then look no further than a loan against property.

As the name suggests, you have to put your property up as collateral in exchange for a loan amount. These loans trump personal loans because of their lower processing times, quick approvals, lower interest rates and longer tenures. All this makes them ideal when you need money for business expansions, sending your kids overseas for education, their marriages or any other event wherein you need urgent funds.

But there are some misconceptions when it comes to loans against property that steer potential customers away from this impressive financial instrument. These misconceptions are actually far from the truth and we thought it was worth it to devote an article to deconstruct three of these misconceptions.

Misconception 1: Only residential property can be used as collateral.
This is not true. Most banks and non-financial institutes will give you a loan against residential property, rented-out property, commercial property, unconstructed plots, shops, etc. As long as you are the rightful owner or co-owner and you can furnish all the documents to prove this, you can rest assured you will receive the loan against property without much of hassle at all. But it’s important to note that banks and non-banking financial institutions may apply higher margins on commercial property, meaning smaller loan amounts as compared to residential properties, so it’s worth it to confirm this before opting for the loan.

Number 2: The loan amount is based on the price at which you bought the property.
Again not true! Rather when you opt for a loan against property, the bank or nonbanking financial institute will send evaluators to your property. They assess criteria such as the location of the property, the condition of the property, the age of the property, etc. to arrive at a current market value for your real estate. The loan amount you stand to receive is based on this value of your property, not the cost at which you bought the property and will generally be 60 to 70% of this value.

Lastly; the lender take possession of the property in question:
This is probably one of the biggest misconceptions with loan against property, and again it’s very far from the truth. This thought could find its root from gold loans, wherein you need to deposit your gold with the lender. But with a loan against property, you don’t need to surrender the property, neither is the possession of the property transferred to the lender, neither will you have to transfer the possession back to your name, in fact the only thing the lender will take from you is the original documents of the property, and up on the full repayment of the loan, this too will be returned to you.

There you have it, three of the most common misconceptions regarding loan against property deconstructed. So if you were planning to go in for one then you should and without any reservations in your mind. Speak to a loan advisor today!