What is Loan against Property and How to avail it?
In today’s world, any individual can be in need of funds at any point of time. If he possesses any residential or commercial property in his name, he can easily avail a loan from any financial institution against the legal documents of that property. Such loan is known as loan against property. It can be used for any purpose-personal or business purpose. What are the features of Loan against Property? How to avail such loan?
Features of the loan against property
It is the loan that is obtained against some property.
One has to mortgage his property papers to avail this loan.
The title to the property needs to be clear, marketable and free for encumbrance.
There should not be any existing mortgage, loan or litigation that may affect the title to the property adversely.
The spouse can be included as co-owner and that may result in higher lending.
If the property is co-owned, all co-owners are mandatorily needs to be co-applicant.
The processing fess of the loan is usually 1%, but one must check with the bank as it may vary.
Loan against property has the maximum tenure of 15 years. It is subject to the condition that it should not exceed your retirement age (flexible in many cases).
The repayment of loan is made in EMIs (equated monthly installments) which consists of principle and interest. The EMI starts from the very next month in which you take the full disbursement.
What are the interest rates for loan against property?
Interest rates on the property loan can vary between 12% to 16% depending upon the terms and conditions. These are mostly cheaper than personal loans as there is a collateral security involved in it.
How to obtain Loan against Property?
The most important criteria of obtaining a loan against property is the clear title to the property. It doesn’t matter whether the property is commercial or residential; you live in that property or have given it on rent. You can even get a loan on a plot of land. If the property has more than one owner, all the owners have to apply for the loan jointly.
Documents required for the loan
Most banks and financial institutions require the following documents. It may vary a little from bank to bank.
Application from with photographs
Identity proof and residence proof
Educational qualifications certificate/ proof of business existence
Last 6 months bank statements
Processing fee cheque
Latest salary slips or Form 16 (for salaried persons)
Last 3 years income tax return
Balance sheet and profit & loss statement of last 3 years (for businessmen and professionals).
Factors that affect the loan amount
The loan to be sanctioned on a certain property depends upon the criteria of the bank. However, there are few general points that are looked into by every bank. Basically, the bank looks at your repayment capacity. It also considers your age, income, qualification, stability in income, assets liabilities, your past creditability record, number of dependents, etc. The eligibility of loan generally, does not exceed 60 percent of the market value of the property.
Conclusion: The requirements for the funds to an individual may be for several reasons like sending the child abroad for higher studies, finance your business or finance your child’s marriage. Loan against property is certainly one of the good ways to arrange for the funds. In fact, it is the cheapest loan after home loan. The only negative point associated with it is that if he or she failed to repay the loan, the bank may take the possession of the property. So, if you are capable of paying the EMI on time, it is without doubt good idea to raise the funds.
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What is Loan against Property and how to avail it