Among the numerous credit options available in India, loan against property is one of the most preferred financial products in the market. The reason behind its popularity is that borrowers can obtain a considerably large sum of money as a loan at a comparatively low rate of interest.
How does it work?
A loan against property is a secured loan where your property acts as the collateral. The nature of the mortgage is dictated by the Transfer of Property Act of 1882. It states that a mortgage is the transfer of an interest in one or more immovable property to secure a fixed amount of money in the form of a loan.
Note that a mortgage is a ‘transfer of interest’ and not of ownership, which means you retain the possession of the property until such a time that you default on your repayment.
A loan against property can be availed against a residential property (both self-occupied and sublet), commercial property, or a plot of land. The loan amount is decided based on the property’s market value, which is evaluated by a lender-approved appraiser on receiving an application for the loan.
To improve your chances to get the loan approved with a high LTV, you should make sure that the property is owned entirely by you and is free from any previous liens.
After evaluating your mortgaged property, the financial institution will decide on the amount that you are eligible for. It generally ranges from 70%-75% of the value of the mortgaged property. Borrowers prefer this loan because of the low loan against property interest rates long tenors and flexible repayment terms. Lenders are more willing to extend this type of credit because their risk is secured with the mortgage, which they can auction off in case of a default.
Most reputed NBFCs like Bajaj Finserv offer Loans Against Property with a high tenor of up to 20 years at attractive rates of interest. They also provide pre-approved offers on these loans along with multiple other financial products including personal loans, business loans, and home loans. These offers help you save time as they simplify the process of availing your loan. You may check your pre-approved offer in a few seconds by submitting a few essential details.
Is Loan against Property risky?
Certain financial circles are apprehensive about loans against properties. Till 2018, the combined loan against property portfolio of all financial institutions in the country stood at Rs. 3.7 Lakh Crore.
While it is true that delinquencies in loan against property are rising every year, it can be attributed to a lot of factors. Non-performing assets (NPAs) rose to 3.75% in 2018 compared to 2.98% in 2017.
Despite these figures, loan against property is considered a safe option both for the lender and the borrower. Here’s why.
The risk of the lender is always low on any type of mortgage loan, loan against property included, as the mortgage acts against security against defaults. The lender can liquidate the asset and recover any outstanding amount.
For a borrower, the risk is equally low, primarily because of two reasons.
- Low mortgage loan interest rates
- High tenor
Both these factors ensure that the EMI amount is quite small, which does not make it a massive financial burden. Here are a few things that you can do to eliminate any risk of defaulting altogether.
- Avail only the amount that you need. Simply because you’re eligible for a high loan amount doesn’t mean that you should avail the full amount.
- Calculate your EMI beforehand using an online loan against property EMI calculator. Your EMI should ideally be below 30% of your total income and never over 50%.
It is absolutely safe and risk-free to avail a loan against property from a reputable NBFC. The popularity of LAP is a testament of its safety and security.
