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10 Questions Answered About Loan Against Property

By Finserv MARKETS - Jul 31,2019
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10 Questions Answered About Loan Against Property

As a property owner, you can mortgage your asset for taking a loan against property (LAP) to meet personal expenses including education, marriage, and business-related expenditures. Ideally, the bank sanctions a loan of an amount up to 60 % of the current market value of the asset. The market will potentially grow at 22 % per annum for the next four years. However, it is crucial to consider all the aspects of your decision to take a LAP. Here are a few frequently asked queries that can help you take the next step-

1- What can the LAP Loan be used for?

A personal loan against property can be used for a variety of purposes. If you are a salaried individual, you can utilize the funds for a mortgage buyout or balance transfer of an existing loan, new investments, education or marriage-related expenses, and even for the consolidation of debt.

2- What is the eligibility criteria for LAP Loan?

The loan against property eligibility is ascertained on the basis of age, income, existing obligations (if any), track record, the market value of the property, and the stability or continuity of the business or employment. If you are a salaried individual, you will need to provide income proof and ITR.

3- What are the criteria for the property that is being mortgaged?

The property should be free of litigation, have no existing mortgage or loan, and should have a clear title. If there is more than one owner for the property, all the co-owners will be taken as co-applicants for the borrowing. Also, you should furnish proof of insurance as and when required.

4- On what basis are the Equated Monthly Installments (EMIs) calculated?

The EMI essentially consists of the principal amount and interest. The EMI amount will depend on the amount borrowed, tenure, and rate of interest. Further, you can reduce your EMIs with partial prepayment. Finserv MARKETS offers Loan Against Property with repayment tenures that range from 2 – 20 years.

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5- What is the process for sanctioning and disbursing the LAP?

First, you will need to provide eligibility-related and other documentation. The lender will assess your creditworthiness on the basis of your age, income, employment status or type of business, bank statements, and CIBIL report. Next, the lender will issue a loan sanction letter with terms and conditions on the borrowing. If you choose to accept the terms, the loan will be disbursed after a thorough assessment of your property documentation and any other relevant material provided.

6- What do the terms ‘amortization schedule’ and ‘negative amortization’ mean?

The amortization schedule is a table that highlights the break-up of EMIs and the impact on interest repayment and the outstanding principal amount. If the interest rate increases, there is a direct impact on the interest component of the EMI. Even though the EMI remains the same, the principal amount reduces. In case the rates continue to increase, the interest component could become more than the EMI itself- leading to a negative principal component. The outstanding amount increases with this negative principal amount. This is called negative amortization.

7- Does the change in interest rate affect the amortization schedule?

If your loan comes with floating interest, the interest component can be impacted. In the case of a change in interest rates, the tenure for the loan can be increased or reduced, or the EMI amount can be reset.

8- How does a property dossier help?

The property dossier provided by Finserv MARKETS is an industry-first customized report to help you understand the legal and technical parts of owning real estate. It also includes information and tips and elaborates on macro factors such as the property index of the city.

9- What types of properties are eligible for a LAP?

You can obtain a LAP with a self-occupied residential, rented residential or commercial, vacant residential or commercial or shared property. Plots, industrial property, illegal property, property outside the city or municipal limits, property with structural flaws, a property built on agricultural or farmland, property with existing mortgages, property with tenants for over five years and no renewed rent agreement, schools, under construction property (except NRP transaction), residential property utilized for commercial purpose without authorization, and hotels are among properties that are not eligible for LAP.

10- What are some of the benefits of a competitive LAP policy?

A competitive policy could offer flexible tenure and other facilities to increase the convenience of accessing and repaying a loan against property. Finserv MARKETS offers flexible tenure between 2 and 20 years, a part-payment facility at a minimal cost, and a balance transfer and top-up option.

The property should be free of litigation, have no existing equitable mortgage or loan, and should have a clear title. If there is more than one owner for the property, all the co-owners will be taken as co-applicants for the borrowing.

“Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere”!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522