The interest and everything else: Understanding the loan against property

Posted by Shaheen Shaikh on June 4th, 2019

The loan against property can help you raise finances in a short amount of time, by leveraging the current market value of your owned property. This article explores its viability.

Owning a piece of Indian realty is an asset in more ways than one. Not only does it help you get a permanent shelter, but it also helps you raise finance against its market value, if you are ever in need of funds.

One way of raising money against your owned property, is to take a mortgage loan or a loan against property. It is a good instrument to explore if you require funds quickly and without having to seek other sources of funding.

What is a loan against property?

A mortgage loan, or a loan against property, is a loan offered against a property that you currently own. The property could be residential or commercial in nature. However, most lending institutions in India offer mortgage loans against residential properties only.

The mortgage loan helps the property owner raise the funds against its current market value. The money can be used for a variety of purposes, from buying a second property to financing a new business. The lending institution does not ask why you need the money, but only ticks off the loan against property eligibility criteria first.

Do note that you can take a loan against the property even on leased properties, as a loan against a leased property. In either case, the lender checks your loan against property eligibility, loan against property documents, market rates, and your repayment ability before approving the loan.

How does the loan against property help you?

• The loan against property or loan against leased property is often taken to fund high value purchases or expenses. It comes in handy if you wish to send your child abroad for higher education, or to buy a second house, or to start a new business, etc.
• Basically, it is a good instrument to help you meet the shortfall in your personal finances and fund an essential need.
• However, you must satisfy the lender’s loan against property eligibility criteria before the loan is approved. This includes having a good credit history, no outstanding loans on the property, a steady source of income to repay the loan, etc.
• The loan against property also normally has a higher rate of interest than home purchase loans. Inquire about the interest rate schedule with the lender before you apply.
• Check the list of the loan against property documents required before you fill out the form. You must have the property’s original sale of agreement and society share certificates, apart from other documents mentioned on the list.
• Any defaults on repayment may result in penalties. Applicants who stop repaying the loan mid-way may be served a notice, and the property may be attached by the lender to recover their unpaid dues.