Monetise your property with a mortgage loan

Posted by Shaheen Shaikh on August 28th, 2018

Instead of liquidating an invaluable asset like your own property, you can monetise it by applying for a loan against the property. This article explains how the loan against property works.

Owning a property is a boon in more ways than one. It offers good liquidity in case you need a large sum of money. But instead of selling the property, you can consider taking a loan against property.

What is loan against property?

The loan against property is also referred to as a ‘mortgage loan’. It is different from the house purchase loan. A house purchase loan is taken to buy a property, where the bank uses the property as collateral against possible loan defaults and future attachment. When you apply for a loan against property, you are essentially borrowing money against the current market value of the residential or commercial property that you own.

Why a mortgage loan is better than selling the property

If you were to sell your property, you would certainly get the funds that you seek, but you would lose the property forever. However, with a mortgage loan, you retain the property’s ownership in every respect. The bank does not assume ownership of the house unless you default on the loan repayment – in which case, the bank may attach the property or sell a part of it to recover the unpaid dues if you are found unable to repay the loan.

What you need to know about the loan against property

There are several points you need to be appraised of before you apply for the loan against property. Consider the following points of note:

• You can use the loan money to fund a personal or professional dream. You may use the money to pay for your child’s education in a foreign university, or to make a down payment on another house, or even to start a new business.
• The lending institution or bank does not concern itself with why you need the money. The bank checks your eligibility for the loan, offers you a certain interest rate for loan against property, and checks the property’s papers before approving the loan application.
• You cannot take a mortgage loan against a property that you are already repaying a house purchase loan on it. If you need to raise additional finances against the same property, you can opt for a top-up loan.
• The loan against property interest rates are marginally higher than those of home purchase loans.
• The loan amount is approved basis your credit score, age, income source, age of the property, current market value and city of location.
• It is not advisable to take the mortgage loan if you are unsure about your future employment prospects, i.e. about to retire, or about to take an unpaid sabbatical/quit the job.

Leading banks offer different types of mortgage loans, so be sure of which product you are choosing before you apply for the loan against property.