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From Paperwork To Disbursal, Know All About Loan Against Property

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There are times when a financial crisis forces people to mortgage their properties, which remains the only solution as of then. But pledging property is not an easy task. There are many things that the borrower must know. With loan against property, borrowers can handle their monetary problems quite efficiently. 

When it comes to acquiring property loan, there are many misconceptions and doubts amongst individuals that must be cleared for one to make smart borrowing decision. To make loan application process easy and convenient, we have listed few important topics in detail. Reading these topics can help in clearing common doubts about the loan option.

  • Know the need: There are people who seek property loan for various reasons. Some of which are: – 
  • Business build-up: Many individuals mortgage their residential or commercial property so that they can use the money to fuel their existing business or start a new one.
  • Acquiring a new property: Sometimes properties are pledged to buy a new property. This is a widely used practice. It is mostly done by the people involved in real estate businesses.
  • Coping-up with medical emergencies: Individuals who face sudden medical emergencies and the bill exceeds the insurance they have, opt for mortgaging their property. 
  • Lavish marriage ceremony: It is very common in India that there are people who spend heftily on marriage ceremonies. This extravagant spending requires good amount of money as well. This is where pledging property comes in handy.
  • Higher education: Many a times people mortgage their property for their children’s higher education. Studying in high-value universities or staying abroad can come in pricey for many. Property loans can fuel this cash needs easily by enabling one to raise funds in lump sum.
  • Know the eligibility: An individual is required to meet certain criteria to be eligible for obtaining a property loan. Such requirements are:
  • Complete ownership of the property: Borrower must be the legal owner of the property and there should not be any legal issues on the property to be mortgaged.
  • Lease and agreement copy: Loan seeker must produce every legal document related to the property when asked for by the lender. 
  • Identity and residential proofs: Borrower must be a residing citizen of India and must have a valid document to prove so. Commonly accepted ID proofs for availing a property loan include:
  1. Aadhaar card 
  2. Voter ID card
  3. PAN card
  4. Passport
  5. Ration card

For residential proof, a borrower may submit a copy of:

  1. Aadhaar card
  2. Voter ID card
  3. Ration card
  4. Rent agreement
  5. Electricity bill (not older than 3 months)
  6. Water bill (not older than 3 months)
  7. Gas bill (not older than 3 months)
  8. Updated bank passbook
  • Know the documents required for quick loan disbursement: Lenders ask applicants to submit necessary documents related to their profession. Documents like ITR File, salary slips, company offer letter, etc. (for salaried individuals), and for people involved in business, lender may ask GST certificate, updated current account statements, trade license, etc.

Now, after clearing most common doubts regarding eligibility and documentations, knowing about the interest rates and types of loan against property can be quite useful for a prospective borrower.

Choice of Interest Rate Type

Lenders primarily levy two types of interest rates on property loans, namely fixed and floating rates of interest. These two types of levy vary based on the rate charging system. In the first case, the interest levied on the loan at the beginning of the tenure remains the same throughout the tenure as it is not impacted by external factors except any regulatory changes implied.

In the case of floating rate system, the rate levied initially changes during the tenure based on the market changes brought in force. Thus, an increasing market trend would increase the rates and vice versa. 

However, it is often wise to go for the floating rate of interest during times that indicate falling rate trends as this can benefit the borrower significantly and help save on unnecessary interest levy. 

Contrarily, the fixed system of interest rate levy can be beneficial if the market rates are expected to rise in the future depending on the tenure of these loans. In the case of property loans, however, making such prediction is difficult as these loans are long-term advances. It is thus suggested to go for floating rates when availing the advance.

Another reason why you can look forward to floating rate of interest on property loans is that interest under thus system is levied at rates a notch lower than fixed rates. As these are long-term advances, even the slightest decrease in these rates can mean significant impact on the total interest levy, which can amount to remarkable savings in the long run.

LTV or Loan to Value Ratio

It is important to understand the concept of LTV in property loans as it can determine the maximum loan amount you can avail. LTV is the maximum loan availability cap that the lender fixes as a percentage of the current market value of an asset mortgaged. Now, as property loans are available against both residential and commercial properties, the LTV of one lender can vary based on the property you extend for mortgage.

Usually, in the case of property loans against commercial properties, the LTV can go high up to 80% whereas for residential properties, it can go up to 90%. One must also know that depending on the location of such property and the amenities available in and around, the LTV offered to a specific borrower can vary too. Various other risk factors associated with the borrower impact the Loan to Value ratio of property loans as well. 

When applying for a loan against property, make sure that you meet all eligibility requirements laid down by the selected lending institution. If you exceed most of these requirements, it leverages your borrowing position for securing favourable terms on the loan, thus making it easily manageable.

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