Loan Against Property
Loan Against Property
What is A Loan Against Property?
A Loan against Property is a mortgage loan provided by banks and financial institutions for personal as well as business purposes.
When Should I consider taking a Loan against Property?
A Loan against Property can be availed for a variety of purposes ranging from home renovation to purchase of machinery as well as to meet the shortfall of working capital. It is a safe proposition for the banks because they have collateral of the property as support for the finance they provide.
Salaried people opt for mortgage loans to cater to expenses like the educational needs of their children, medical expenses, home renovation, and so on. Business enterprises prefer the Loan against Property as collateral towards Business Loans and for procuring working capital requirements.
A Loan against Property is easy to procure because it is secured in nature. Banks usually maintain a margin while sanctioning a Loan against Property. This margin usually ranges from 50-90% of the value of the property (also known as LTV or Loan-to-Value). This facility is also popular because the borrower can utilize the property in spite of mortgaging it in favour of the bank.
The difference between a Loan against Property and a Personal Loan is that can take a Personal Loan without providing collateral. However, a Loan against Property requires you to mortgage your property to the lender.
Another significant difference is the rate of interest on a Loan against Property is less than the rate of interest on a Personal Loan. It is primarily because of the security available to the bank. Banks have the option of selling the security and recovering their dues in case of default on the part of the borrower.
There are various types of Loan against Property. While it can be confusing for a first-time borrower, VIVA can help you through the entire process. Explore the possibilities with VIVA and seal the deal!
Features Of LAP
- Easy to get – LAP is a secured loan. Banks maintain a margin in the range of 50-90% of the value of the property.
- Longer tenure – Usually banks sanction a LAP between 3 Lakhs to 100 Crores. It is the only loan facility other than the Housing Loan that allows banks to stipulate repayment periods exceeding 10 years. Banks are willing to sanction loans against property with tenures extending up to 15 years.
- Lower interest rate – In comparison to the Personal Loans, LAPs have a lower rate of interest. The reason is the security offered to the banks.
- Lower EMI – When you have longer tenure and a lower interest rate than Personal Loans, the EMIs are bound to be lower.
- Flexibility – Various banks have flexible loan products in this category. They are the term loans and overdraft facilities. You do not have this flexibility with the Personal Loans.
- Tax Benefits – You get benefits on the Income Tax front if you avail a LAP for home renovation purposes. Usually, customers go for home renovation loans if they have to carry out repairs to the same property to be mortgaged to the bank. You might carry out repairs to your home but avail a LAP by mortgaging another property. Under such circumstances, you have to prove that the end use of the loan is for carrying out renovations to the property you reside in.
Why apply for LAP with VIVA
VIVA can help you in this regard. We procure information from various sources and display it on a single screen thereby allowing you to compare a range of products. It helps you make an informed decision. We help you with other aspects of the deal like demographics, income and repaying
capacity, and so forth.
At VIVA, you have access to:
- The lowest rate of interest – The comparison on the screen allows you to choose the lowest rate on offer.
- Lowest processing fees – Usually, banks charge processing fees to the extent of 0.50-1%. As there is an involvement of a high amount, processing fees can constitute a significant chunk of your expenses.
- Easy documentation – The credit team at VIVA helps in completion of documentation formalities.
- Higher Loan to Value Ratio (LTV) – The LTV differs from bank to bank. At a, you will be able to compare the various margin rates and choose the one most suitable for you.
- Prepayment clauses – These are hidden charges that borrowers usually ignore. It can be in the range of 2-5%. VIVA helps you compare the prepayment clauses of various banks and help you find the best choice.
- Transaction charges – LAP requires the creation of equitable mortgage of property. It can cost you a lot of money ranging from advocate fee, evaluation fee, stamp duty on mortgage registration, and so on. Some banks include the advocate fee and evaluation fee in their processing fee structure whereas some banks charge separately. VIVA helps you make this distinction and gets the deal most beneficial for you.
VIVA has specialists who have experience of over 28 years in the field of Loan against Property and can help you:
- Assess your demographic and personal profile
- Examine your previous repayment record
- Understand the various terms used by bankers such as Legal Scrutiny Report (LSR), and the other policies of the banks in connection with a Loans against Property
- Understand the fine print that people frequently overlook
Different Types of LAP
- Business Expansion Loans – Business entities can avail this facility for acquiring new machinery, purchase of plant, meeting working capital requirements, and invest in new technology or business. The lending banks require collateral in the form of property, residential, commercial, or industrial. Depending on the nature of the property available as collateral, the lending banks calculate the loan eligibility. For commercial properties, the LTV is around 55- 65%. In the case of industrial properties, the LTV reduces to 40-55% whereas the LTV in the case of residential property is in the range of 65-70%.
- Working Capital Overdraft Facility – Banks sanction overdraft facilities against the property for meeting the day-to-day working capital requirements. Under such circumstances, the property is accepted as collateral. Lending banks estimate the amount of finance required based on the following figures:
- Property value and nature of the property
- Actual working capital requirement calculated as per the internal policies of the bank, usually the Projected Annual Turnover method.
- Personal Expenses – Individuals can also avail Loan against the Property for personal expenses such as medical expenses, educational expenses, marriages, travel, as well as for purchasing consumer durables.
- Home Renovation – Usually, people do not avail this loan for renovating homes as there are separate schemes available at comparatively lower rates of interest. However, there can be circumstances when the borrower might have to resort to avail a Loan against Property for home renovation.
- Lease Rental Discounting – Some banks offer loans against the future rent receivables, especially in metropolitan and urban areas. One should note that the property that fetches the rent should also be mortgaged in favour of the bank. Banks usually finance in the range of 75% to 90% of the future lease/rent receivables. The tenure of such loans is shorter and should end before the expiry of the lease or the rental