A loan against property (LAP), also known as a mortgage loan, is a secured loan provided by banks, financial institutions, or non-banking financial companies (NBFCs) to individuals or businesses against the mortgage of their residential or commercial property. It allows borrowers to unlock the value of their property and access funds for various purposes, such as business expansion, debt consolidation, education expenses, medical emergencies, or other financial needs.
How does loan against property works?
1. Application:
Borrowers apply for a loan against property by submitting an application to the lender, along with the necessary documentation, such as property papers, income proof, identity proof, and address proof.
2. Property Evaluation:
The lender evaluates the value of the property offered as collateral to determine its market worth and eligibility for the loan. The loan amount sanctioned is typically a percentage of the property's market value, known as the loan-to-value (LTV) ratio.
3. Approval:
Upon satisfactory evaluation of the property and borrower's eligibility, the lender approves the loan application and offers a loan amount, interest rate, and repayment terms.
4. Disbursement:
Once the loan offer is accepted and all required documentation is submitted, the lender disburses the loan amount to the borrower's bank account or in the form of a demand draft, cheque, or direct credit.
5. Repayment:
Borrowers are required to repay the loan amount along with accrued interest over a specified period, known as the loan tenure. Repayment can be made through equated monthly installments (EMIs) or lump-sum payments, depending on the terms of the loan agreement.
6. Interest:
Loan against property accrues interest on the outstanding loan amount, typically calculated on a reducing balance basis. The interest rate may be fixed or floating, depending on the lender and prevailing market conditions.
7. Security:
The property offered as collateral serves as security for the loan against property. In the event of default, the lender has the right to seize and sell the property to recover the outstanding loan amount.
8. Loan Closure:
Once the loan and accrued interest are repaid in full, the borrower regains complete ownership of the property, and the mortgage is released.
What are benefits of Loan against property ?
Loan against property offer several benefits, including:
a. Higher Loan Amounts:
Loan against property typically offers higher loan amounts compared to unsecured loans, allowing borrowers to access larger funds based on the value of their property.
b. Lower Interest Rates:
Since the loan is secured against property, lenders offer lower interest rates compared to other forms of unsecured borrowing, such as personal loans or credit cards.
c. Flexible Repayment Options:
Lenders offer flexible repayment options, including longer loan tenures and customizable EMI schedules, to suit borrowers' financial capabilities and preferences.
d. Multipurpose Use:
Borrowers can use the funds from a loan against property for a variety of purposes, such as business expansion, education expenses, medical emergencies, debt consolidation, or home renovations.
Loan against property is a valuable financing option for individuals or businesses looking to leverage their property assets to access funds for various financial needs. However, borrowers should carefully consider their repayment capacity and the terms of the loan before availing of a loan against property to ensure they can manage their debt responsibly and avoid the risk of losing their property due to default.
