Common Queries That Revolve Around Loan Against Property Misconceptions

A loan against property has obvious advantages over many other financing options available in the market—it offers a high loan value that can be used to finance further education of your children, wedding expenses, business expansion and more. However, despite obvious advantages, there are many myths and rumours surrounding loans against property. If you are looking for a means to debunk some popular loans against property myths and find solid information, then you are at the right place. Today, we will dispel some of the prevalent misunderstandings and queries concerning a loan against property.
 
Loan Against Property Myths Debunked: 
 
A loan against property not only offers a higher loan amount and lower interest rate but also comes with several myths. To answer these misconceptions about loans against property, we have compiled a list of frequently asked questions revolving around loan against property myths.

 

#Query 1  
Can I use the mortgaged property?
 
This is one of the most often asked questions in the financial world. The majority of individuals believe that once they have pledged their property to acquire a loan against it, they cannot use it. However, the truth is far different from the myth. You can utilise the property as and when needed while mortgaging it; just do not default on your monthly instalment payments regularly. To end this query, yes, you can use the mortgaged property in a loan against property (LAP). 
 
               Also Read: Documentation for Loan Against Property - What You Need to Know
 
#Query 2
Is a loan against property available only on residential property?
 
Many borrowers believe that they can avail of a LAP only against a residential property. In addition, few individuals associate LAP with home loans. The fact behind this loan against property myth is that LAP can be availed of on commercial property as well. You can get a loan against your property by mortgaging your shop, establishments, factories, offices etc.
 
#Query 3 
Can I get 100 per cent LTV on my mortgaged property? 
 
The loan-to-value (LTV) ratio in loans against property depends upon numerous factors. Each lending institution has its own set criteria for loan against property. Based on those criteria, the LTV ratio can range anywhere between 40 per cent and 75 per cent. The actual amount of a loan against property is determined by the property's market value and the financial institution's internal policies. As such, you won't be able to receive the full value of your mortgaged property.
 
#Query 4 
Is a loan secured against property for shorter tenure? 
 
Individuals who ask this question will be surprised to learn that a LAP has a longer repayment period than other loan forms. Personal loans, two-wheeler loans, car loans, and other types of loans are all available for up to five years. On the other hand, a loan against a property has a maximum repayment period of 15 years. To receive a longer-term LAP, you must meet your selected lending institution's loan against property eligibility requirements.
 
               Also Read: Understanding Loan against Property Interest Rates and Charges
 
#Query 5 
Do I have to pay a higher rate on my loan against the property?
 
This is another of the loan against property myths. This misunderstanding has arisen as a result of the property's soaring price. If you want to learn more about loans against property and how it works, bear in mind that the interest rate on a LAP is determined by several factors. The value of the property, the type of property, the applicant's income and occupation, and a few other variables are among them. As LAP is a secured form of financing, and the mortgaged property is of higher value, it has a lower interest rate than other loan forms.
 
#Query 6
Can I use the loan against property funds as per my choice?
 
Unlike business loans, two-wheeler loans and used car loans, financial institutions do not place any restrictions on the use of funds from a LAP. You can use the loan against property funds for multiple purposes. As the collateral involved here is of higher value, it is recommended that you utilise a loan against property for a purpose that requires a higher sum of money. In case your needs are small, you can opt for a personal loan instead.
 
#Query 7
Do I need to have a high income to avail of a loan against property?
 
When we talk about a loan against property, you don't have to be a high-income individual to take advantage of secured financing. As the property is pledged with the lender in secured loans or loans secured against property, the lender has an extra cushion on the risk element. Moreover, the majority of financial institutions have minimum income criteria for a loan against property. It makes no difference whether you make a high income or low as long as you can assure lending institutions of your repayment capability.
 
               Also Read: How to Take a Loan Against Property And How Much Loan Can I Get Against It?
 
#Query 8
Does the lender take possession of my mortgaged property? 
 
This is another common loan against property myths. Many borrowers believe that collateral or a mortgage indicates that their property is under the possession of the financial institution. This, however, is not the case. Lenders take control of the property only when the borrower defaults on their loan EMIs. In the event of default, the lender auctions the property to recover the loan amount. 
 
# Query 9
Is the sanctioned loan amount based on the purchased price of the property?
 
Assume that your father or grandfather purchased a property worth Rs 1 lakh in the 1960s. You go to a financial institution in 2021 and put the property up as collateral, and the lender disburses the loan based on the property's purchase price. Is this a realistic scenario? Not at all. The lender considers the current market value of the property when determining loan against property eligibility.

To Conclude

Now that all of your concerns about loan against property myths have been dispelled, it is time to apply for a LAP without any hesitation. To ensure you do not fall prey to any of the misconceptions, it is a good idea to look into your desired lending institution's terms and conditions along with the eligibility criteria for a loan against property.