A Loan Against Property is exactly what its name suggests – it is a loan where the bank or NBFC (Non-Banking Financial Company) lends you money and holds your property as security until the loan is repaid. Of course, the loan approval is dependent on the property eligibility, among other factors. Once you repay the loan in full, you regain possession of the property. In case you fail to repay the loan, the lender can attach the property and dispose of it to recover the unpaid dues.
Advantage of Loan Against Property over a personal loan
A Loan Against Property is a popular type of loan to take as it is one of the cheaper retail loans available. It is similar to a personal loan in that you can use the loan amount for any purpose – like debt consolidation, business expansion, education expenses, family or medical emergency. However, when compared to a personal loan (which offers similar flexibility of end-use), it offers a lower interest rate, a larger loan amount and a longer repayment period.
What are the property eligibility criteria for a Loan Against Property?
1. Residential properties are eligible, either self-occupied or if you have rented it out to a tenant. You cannot avail of a loan against propertythat you do not own, or that you pay rent on. You can also avail of a LAP (Loan Against Property) for an empty unused plot of land.
2. You must have a clean title deed, with no encumbrances (like other loans, mortgage or litigation) which could adversely affect the title.
3. Commercial properties can also be used for a mortgage loan against property. Using a commercial property for loan will also require similarly clean property documentation.
4. If the property being mortgaged is under construction, then the bank usually disburses the loan in tranches or installments. Only interest will be levied on the amount that is already disbursed – i.e. you only need to pay interest on the amount you have received, you do not need to make payments towards repayment of the undisbursed loan amount. This is the Pre-EMI. Only once the full loan is disbursed, you will be liable to pay the regular EMI that includes both interest and principal repayment.
You will need to get all the property papers stamped according to local stamp duty laws. You will be responsible for all the costs relating to the property documents. You can ask your lender for the applicable stamp duty on your loan.
Can I get a loan against property if the property is jointly owned?
Yes, you can get a loan on property even if it has multiple owners so long as all the co-owners are co-applicants for the loan.
Is there any restriction on the location of the pledged property?
Some lenders might have a list of cities where the property needs to be located. However, it is best to check these details with each individual lender.