Loan Against Property

What Is Loan Against Property / Mortgage Loan ?

Taking funds by pledging some property is known as “Loan against Property” (LAP) or Mortgage Loan. Whenever a business needs funds over & above its normal operations or for some major expansion, lenders seek additional security for their credit line to secure their loans against future requirement.

The interest rate on LAP is lower than the unsecured loans & its tenure is higher. The purpose of secured loan could be business expansion or long term working capital infusion or sometime personal reasons for which funds are needed. The repayment tenure of secured loans is from 10 to 20 years depending upon the borrower’s comfort. Any person can apply for LAP or secured funds & quantum of funds is dependent upon the business of the borrower or income of the borrower. A salaried person can also get LAP loan.

Key Features / benefits of loan against property

1. Higher Loan Amount: Loan against property can be availed for higher amount compared to unsecured loan because the borrowing is secured on the assets thus banks comfortable to take higher exposure.

2. Low interest rates: As the borrowings are secured against assets the cost of borrowing is reduced. Because underlying risk got reduced due to security of assets

3. Long tenure: The loan tenure is longer due to low risk funding & lenders used to offer better terms for repayments

4. Debt Consolidation: The secured loans can support the debt consolidation by prepaying the small loans of various lenders so can be termed as good tool for debt consolidation.

5. Liberty of uses: generally the LAP loan is taken for certain cause which may relate to business or personal uses of the borrower.

6. Mortgaging Property: The loan against property can be taken against any type of property. It may be a residential property or commercial property

7. Loan to Value: Generally banks / lenders apply certain haircuts on the value of property while deciding the loan amount against a property. The loan amount can be 60% of the property value. The loan amount can be higher & go up to 200% of the property value depending upon the other credentials of the business of the borrower.

Purpose Of Loan Against Property / Mortgage Loans

The purpose of taking Loan against property or mortgage loans could be anything :-

Business purpose:

Any person can take a loan against property for setting up a new business or expansion of existing business. The expansion can be in the form of buying new machinery, creating inventory for future demand or enhancing working capital cycle by extending credit to the buyers or it can be establishment of new set-up of plant for higher production. All such business purposes which put major impact on routine operations are eligible for LAP .

Sometime equity investors are also willing to extend exposure over & above their capital infusion as debt against mortgage of business assets. They usually hold 2nd charge on assets but get security for their debt funding. An asset backed entity holds better visibility in front of equity investors to establish the earnings in the form of past performance & taking funds by mortgaging business assets entails higher comfort due to low cost funds for operation.

Personal Emergency / needs:

Life is uncertain, you never know when medical emergency may come. LAP assist you to meet such urgent requirements.

Similarly in Indian culture, marriage marks one of the most joyful and memorable events for anyone. While marriage spending vary among people based on their tastes and capacity but generally most weddings exceed the planned budget. A LAP loan helps to overcome the requirement of a fund such needs.

Similarly going abroad for Higher Education requires funds in a large amount. A loan against property assists an individual to settle these education fees and dream of getting a degree from foreign universities.

Required Documents

Complete Chain of Property Papers to establish the title of the borrower

Income & financial documents to establish the repayment capacity of the borrower

KYC documents of the applicant & co-applicant.

Share With Friends:

Leave a Reply

Your email address will not be published. Required fields are marked *