Mortgage loans are essential for anyone looking to buy a new home or refinance an existing property. However, the process of selecting the right type of mortgage can be complex. With so many options available, it’s crucial to understand the different types of mortgages to make an informed decision.
One type of mortgage that stands out is the loan against property (LAP). It provides a quick solution to meet your immediate financial requirements while allowing you to keep your property. Let’s discuss in detail what is meant by a loan against property and how it works.
What is meant by loan against property?
A loan against property is a type of secured loan where the lender provides you with funds against your property. It involves pledging your property as collateral in exchange for a lump sum amount of money. The loan amount is determined based on the current market value of the property and is usually up to 70% of the property’s value.
The loan against property interest rate is lower than other forms of personal loans because of the collateral provided. Additionally, it offers longer repayment tenures and allows one to borrow a larger sum of money than personal loans. The interest rates are lower when compared to personal loans and unsecured loans.
Loan against property has gained immense popularity over the years. It is a preferred choice for individuals who need funds for personal or professional reasons such as wedding expenses, debt consolidation, medical emergencies, education fees, business expansion, or other capital requirements.
Types of loan against property
Individuals can avail of two types of loan against property: commercial and residential.
Residential loan against property: A residential loan against property is a type of mortgage where an individual can pledge their residential property as collateral to secure the loan. The borrower can use the loan amount for various purposes, such as home renovation, home expansion, or paying off outstanding debts.
Commercial loan against property: A commercial loan against property is taken against commercial property, such as land or commercial building. The loan amount is used to finance commercial or business purposes like expansion, inventory purchase, machinery purchase, or to repay the outstanding debts of the company.
The interest rates for both loans types depend on the current market value of the property, credit score of the borrower, loan amount, and repayment tenure.
How to apply for a loan against property?
The process of applying for a loan against property is straightforward. The following steps will guide you through the process:
- Assessment of the property: The first step is to get your property assessed by a registered valuer to determine its current market value. This value will be used to calculate the loan amount you are eligible for.
- Documents required: You will need to submit documents such as identity proof, address proof, income proof, and property documents, including the sale deed, property tax receipt, and building plan.
- Choose a lender: Do some research and choose a financial institution that suits your requirements. You can compare the interest rates, processing fees, and repayment tenures of different lenders to make an informed decision.
- Loan application: After selecting the lender, you can apply online by filling out the loan application form. Once you have submitted the application, a representative from the financial institution will contact you to verify the details and initiate the loan approval process.
- Loan approval: After verifying your documents and property value, the lender will approve your loan. You will receive the loan amount in your bank account once all the formalities are complete.
Conclusion
To sum up, a loan against property is a secured loan that offers various benefits such as lower interest rates, longer repayment tenures and larger loan amounts. It is an ideal option for individuals who need funds for personal or professional reasons like debt consolidation, home renovation, medical emergencies, or business expansion. However, before applying for a loan against property, it is essential to understand the different types of mortgage loans to make an informed decision.
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