Loan & Insurance

Top 8 Misconceptions About Loan Against Property – taxscan.in

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When it comes to a big-ticket investment or long-term financing, a loan against property is considered as the safest option. It provides you with financial assistance and can be used for a variety of personal or business purposes. However, several myths about mortgage loans still exist. Today in this article, we are going to dispel all these myths associated with a loan against property
Have you given up on the thought of taking out a loan against your property because a close friend informed you that you needed a high income to qualify for this type of financing? If yes, then change your decision right away.  In the case of a mortgage loan, you need to submit the documents of your expensive land or building, and the lender takes possession of the property papers until the loan is repaid. Since you mortgage a high-worth property with the lender, the risk involved in lending is minimised to a great extent. As such, to obtain a loan against property, you don’t need to come under a high-income bracket. 
Are you scared to apply for a loan against the property because you have heard that once the funds are disbursed, the financial institution won’t let you utilise the property until the loan is repaid? If yes, get rid of this thought right away. In a loan against property, the financial institution only takes possession of your property papers, and they do not occupy your mortgaged land or building. It means that you have complete freedom to utilise your property as you see fit, with no restrictions imposed by the financial institution. However, if you default on your loan, the financial institution has the complete right to auction your property to recover the outstanding dues. 
How would you feel if you acquired some land in 1980 for Rs 60,000 and a financial institution granted you a loan against property in 2021 based on the LTV calculated on Rs 60,000? You will feel frustrated. This scenario, however, is based on rumors circulated by people due to a lack of awareness. In reality, financial institutions compute LTV using the property’s current market value. In India, mortgage loans are available with a loan-to-value (LTV) of 40 to 75%. In addition to the value of your home, the financial institution considers your income, credit history, and a few other factors when determining the amount of your loan.
Many people believe that you can only get a loan against a property if it is residential land or a building. However, if you think about it, which lender will refuse to offer a loan against commercial property, considering the soaring price of commercial spaces? In fact, there are numerous lenders whose rate of interest on LAP against commercial spaces is lower than that of residential property. So, if you have any office space or a shop and are hesitant to apply for a LAP, put your fears aside and do so right now.
Have you ever asked a representative from a financial institution why a lender charges a higher interest rate in case of some people and why all borrowers are not charged the same interest rate? The answer is the amount of risk involved in lending to different types of borrowers. In the case of a mortgage loan, you put your high-value property on the line, which ultimately lowers the risk involved in lending. This is why, when compared to other financing products, LAP interest rates are much lower. So, anyone spreading the myth that a loan against property is only available at a high-interest rate should first educate themselves.
Do you intend to apply for multiple loans at different intervals only because you heard that a loan against property can be taken out for a short period? If yes, reconsider your decision, and keep in mind that LAP is available for a maximum period of 15 years. When you compare mortgage loans to gold loans, personal loans, and business loans, you will notice that the LAP product has the longest repayment period.
A widespread misconception about mortgage loans is that the approval procedure is quite rigorous. This, however, is not the case. Due to the legal verification and appraisal of the property to be mortgaged, the lender takes a few days to approve your loan against the property. Once they successfully verify your documents, the funds are disbursed shortly to your account. 
In the case of a loan against property, the property offered as collateral is of high market value. The loan is provided based on the current market value of the same. Given this, anyone who claims that LAP only gives out small loan amounts is simply propagating rumours.
A loan against property is a great option to go for when you need a large sum of money at a low-interest rate and for a long period. Just make sure you have all the property documents handy before applying. Also, research and compare multiple lenders online before you decide to approach one. 
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© 2020 Taxscan

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