What is Loan Against Property
Loan to buy a property is one of the widely availed loans by individuals looking to own property; be it a commercial property or a residential property.
A loan against property is a loan that is availed by offering a property as security. This is different from a home loan, where a loan is availed for buying or construction of a property.
Purpose of Loan Against Property
When u avail of a loan against a property, the loan can be used to meet any purpose like a personal loan. The loan can be used for funding your business venture, as an educational loan, to meet marriage expenses or it could be used to buy another property. A loan against a property can be availed as a lumpsum loan or even availed like a line of credit over a period of time.
How to Avail of a Loan Against Property?
To avail of a loan against property, you can approach any bank or NBFC which gives loans against property with relevant documents of the property.
Documents needed to avail a loan against property are:
- Title Deed of the Property
- The property tax paid receipts
- Other documents such as Occupation Certificate, etc for the property
- Insurance documents for the property
- Any other documents as decided by the lender in relation to the property
Other documents as mentioned below will also be required
- Salary slips /Proof of Income
- Bank account statements
- Address proof
- Identity Proof of the individual
- Form 16/Income Tax Return
Once the documents are satisfactorily verified by the lender, a physical inspection of the property will also be carried out by the lender’s team to verify the physical condition of the property.
After the physical verification, the lender will put a value on the property based on the documents submitted, the physical condition of the property, market value, etc
Lender’s Margin for Loan Against Property
Lenders retain a margin of 20-40% of the assessed value of the property and lend for the remaining value. For Ex: If the assessed value of the property is Rs 50 lakhs, and the lender decides to hold a margin of 30%, the maximum amount of loan that you can avail is Rs 35lakhs.
The decision of the margin to be charged on the loan is also based on the credit profile of the borrower. If the borrower has a good credit score, the margin retained by the lender may be lower than in comparison to a borrower with a low credit score.
Rate of Interest on Loan Against Property
The rate of interest charged on loan against property depends on the credit profile of the borrower and the policies of the lender.
The general rate of interest charged by banks and NBFCs is in the range of 8.15% -15%. The processing fee for a loan against property can range from 0.5% to 2% of the loan amount. However, the interest rate charged on loan against property has a lesser rate of interest than the personal loan as the loan against property is secured by an asset
Tenure Allowed for Loan Against Property
Loan against property is also a high ticket loan like a home loan. While a home loan can have a tenure of up to 30 years (depending upon the policies of the lender), the maximum tenure of the loan against property is 15 years
Ease of Availing a Loan Against Property
The approval of a loan against property is based on many factors like the clear title of the property, the market value of the property, location of the property, the physical condition of the property and the credit profile of the borrower.
It may take quite some time for the verification of all these factors, hence the approval for a loan against property may take longer than usual loans.
Points to Keep in Mind Before availing a Loan Against the Property
There are certain points that you would need to consider before going in for a loan against your property.
- The property being offered remains mortgaged with the lender till the loan is repaid in full.
- While you will be allowed to rent out the property or utilize it yourself, you will not be allowed to make any modifications to the property or sell the property.
- If you are not able to repay the loan on time, the property will be taken over by the lender. So, it good to borrow against your property only if you are sure of repaying the amount on time.