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Monday, February 6, 2023

Loan Against Property: What Are Its Benefits and Risks?

When we need money to meet our urgent needs, the first thing we think of is to take a loan. However, some people have difficulty deciding which loan to apply for or whether getting a lap loan or home loan against property is a good idea. While some of the concerns may be justified, financial experts say that a home loan against property is one of the most secure. The LAP interest rate is much lower if compared to other options. This means you get a high loan amount, but your property is mortgaged to the financial institution. The biggest advantage of a home equity loan is that it allows borrowers to use the value locked up in the property while continuing to occupy it during the duration of the loan.

Benefits Of Home Loan Against Property:

  • Large Ticket Loans:

Properties generally go into the millions to get a significant amount of credit. However, large loans do not mean that you will catch them. Remember that the EMIs can be substantial, and you must also service the loan.

  • Mortgage Means Lower Interest:

Being an asset-backed product, they tend to give lower interest rates than personal or gold loans. Depending on the institution, lap loan interest rates can range between 12-18 per cent. Look for financial institutions or NBFCs and home finance companies that offer better deals in terms of interest rates.

  • Personal and Business Use:

A home loan against property allows borrowers to use the money for various personal and business purposes, such as starting or expanding businesses, to cover accidental medical expenses. This loan is also relatively easy because the lenders get collateral for the money they lend.

  • Demand and Flexibility:

It is in high demand because people can borrow a high amount (up to 70 percent of the property’s value), have repayment flexibility, and the lap loan interest rate is lower when compared to other loans. The loan repayment period can be long, leading to lower EMIs.

  • Partial Disbursement of Funds:

A loan against property gives you the advantage of partial loan repayment, where you can get part of the loan amount paid off and keep the remaining amount for a later time. A partial repayment of the fund is usually advantageous when you take out a loan for construction purposes or long-term working capital requirements where the costs are incurred over several years. You can pay the approved loan amount in several instalments per your requirement. 

Risks Of Home Loan Against Property:

  • The financial institution has the right to sell your property:

Since it is an asset-backed security, the financial institution has the right to sell your assets and collect fees. This is a big disadvantage compared to other loans, such as personal loans. This means that one should not avail of these loans if he is not sure that he will be able to meet his obligations in terms of timely repayment of principal and interest.

  • Long time for approval:

Unlike gold or personal loans, this type of loan takes a long time to get approved. Financial institutions must be satisfied with the asset and ensure it is in the applicant’s name. He will need to research various other legal aspects and do due diligence. The financial institution will examine the title to the property and any encumbrances.

  • Long waiting time:

The waiting time to secure a loan is quite long and frustrating as lenders do background checks on the applicant to ensure the candidate is legitimate. Financial institutions and other financial institutions also check applicants for their credit score, ability to repay and other parameters, which is time-consuming.

  • The financial institution will do various checks:

The financial institution will check all other checks like repayment capacity, credit score, etc. The loan’s value would depend on the financial institution or institution you are taking the loan from. The bigger question would be about property valuation. Around 70 per cent of the property’s value can be expected as a loan that could be sanctioned.

Conclusion

A home loan against property or lap loan is one important financial product that is becoming increasingly popular. If you are confident to pay your monthly instalments on time and you own have a good credit history, opt for a secured home loan and be in control of all the benefits and risks.

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