In India, everyone dreams of becoming a homeowner. Homeownership is a goal that almost 70 to 80% of people strive for. Homes bring with them a sense of relief. One knows that even if life does not turn out as planned, one will always have a roof over their head and a place where their family can live peacefully. These days, homes can also help individuals avail themselves of funds in case of an emergency. Loans against property are a type of loan offering that allows borrowers to unlock the equity locked in their homes. Let us walk you through the basics of a loan against property.

Loan against property or property loans or simply LAP are loans availed of against a residential or commercial property or a piece of land. Any individual who is the legal owner of a property can take a loan against it by pledging it as collateral. In other words, in the case of LAP, the lender releases the loan amount after keeping the papers of the pledged property in their possession. They also agree with the borrower that the inability to pay loan EMIs for an extended period will give the lender the legal right to sell the pledged property for the recovery of the loan money. However, the agreement also clearly states that after a borrower has repaid their loan in full, the lender loses all rights over the property and the property goes back entirely into the borrower’s name. 

Here are a few things that individuals planning to avail themselves of a loan against property must know in advance. 

1. Under LAP, the loan-to-value ratio can go up to a maximum of 70%. In simpler words, based on their credit profile and the quality of the collateral, a borrower can get up to 70% of their property’s current market value as a loan. 

2. The loan money comes with zero end-use restrictions. Whether you want to take care of the expenses related to your child’s education or buy another property or consolidate debt, your lender will not question your intention or plans on how to spend the loan money. Once you have the loan money in your account, you can use it as you like, provided you keep paying loan EMIs on time. 

3. Loans against property interest rates start from 8.50% per annum and can go up to 18% per annum. Some of the factors that affect the interest rate offered to a borrower on a loan against property are their credit score, the quality of the pledged collateral, their credit utilization and debt-to-income ratios, etc.

4. In general, residential properties attract a lower rate of interest than commercial properties. Similarly, properties located in the centre of the city and having all modern amenities attract a lower loan against property interest rate than properties located on the outskirts or old properties that need repairs and refurbishing. 

5. Loans against property are long tenor loans. A long tenor makes loans against property EMIs affordable and eases the burden of loan repayment. However, a long tenor also increases the total interest payout on a loan. One must, therefore, try and strike the right balance between loan tenor and total interest payout on the loan. The maximum tenor that one can get on a loan against property is 18 years.

These are some of the things that borrowers must know about loans against property in India. Keeping these things in mind will allow you to avail yourself of a loan against property easily and also repay the loan without feeling stressed at any point in your loan journey.