Suppose you have a residential or commercial property. In that case, it is an icing on a cake because it can be put to use if you wish to throw a lavish wedding party, fund your child’s higher education, expand your business or meet the medical emergency. Banks and NBFCs provide a credit to the needy people if they pledge their residential or commercial property as collateral; it is called loan against property or mortgage loan. It is a secured loan that is best for the people who want to have a higher loan amount for a longer tenure and lower interest rate. The interest rate is less in mortgage loan because it is secured loan and if a borrower defaults on the loan, then the bank can sell the mortgaged property to fulfil the loan amount. The loan market size against property is growing at a fast pace; in 2018, the market grew by 33% from Rs 7.06 lakh crore to Rs 12.60 lakh crore.
Ten questions which will be in everyone’s eye if they want to avail loan against property
- A mortgage loan can be used for what all purposes?
You can use the funds for any use like business expansion, debt consolidation, medical treatment, meet wedding expenses, fund education, or to go for a vacation. A lender will not ask you the purpose for which you are taking a loan.
- What is the eligibility criteria?
The eligibility criteria for every lender are different. However, the general eligibility criteria are:-
| Particulars | Eligibility |
| Age | 18 years-70 years |
| Minimum income | Rs 25,000 and above |
| Work experience | 3 years and above |
| Credit score | 650 and above |
- What type of property can be used as a mortgage?
A person can take a loan against Self-occupied/ rented/ vacant Residential Property, Commercial property.
- How is EMI calculated?
The three important factors considered to calculate the EMI are principal amount, rate of interest and loan tenure. The formula for EMI calculation is EMI = P × r × (1 + r)n/((1 + r)n – 1)
– Here P is Principal amount
– R is Rate of interest
– N is tenure
- What is the procedure for loan sanctioning?
A loan is sanctioned after a borrower has filed an application form and submitted all the required documents. After that lender do a valuation of the property, and then the loan amount is decided. Most of the lenders can only give loan for 50%-60% of the property’s value.
- What is the meaning of ‘amortization schedule’ and ‘negative amortization’?
An amortization schedule is a table which has details about periodic loan payments. Increase in interest rate has a direct impact on the amortization schedule; it impacts principal amount. Negative amortization means that your principal balance of the loan is increasing because you cannot cover the interest due to loan.
- Does interest rate affect amortization schedule?
Yes, the interest rate affects the amortization table. The increase in rate does not change the EMI, but principal amount reduces.
- What is the use of property dossier?
Property dossier guides you in the legal and technical aspect of owning a property. It helps people get complete knowledge about the property and loan.
- What are the few benefits of the LAP?
Few benefits of mortgage loan are low-interest rate, low repayment charges, longer tenure, more loan amount and easy processing.
- What are the documents required for a mortgage loan?
The documents required to avail loan against property are:-
-Application Form: Signed application form with photo
-Identity Proof: Aadhar card, PAN, Passport, Voter ID card
-Address Proof: Aadhaar Card, Voter ID card, landline bill, registered rent agreement, driving license.
-Income Proof: For salaried, Form 16, salary slips and bank statements and for self-employed Form 16, salary slips and bank statements, ITR, business proof and business profile
-Property Documents: Registered sale deed and house tax receipt and past sale deeds chain
Bottom line: With these points in mind, a borrower can make a wise decision and choose the right lender for a loan against property. If you have a property and want a higher loan amount, put it to fair use.
