There are many misconceptions about the loan against property, despite the fact that it is a safe and reliable way to borrow money for a variety of purposes. These can prohibit you from using it to its best potential and making an impulsive and incorrect decision if you fall prey to them. In this blog we have discussed some common misconceptions pertaining to loan against property and have provided information so that you make an informed decision.
The borrower is unable to use the pledged property
One of the most widespread misconceptions about a loan against property is that the property pledged by the borrower cannot be utilized. The fact is that just by pledging your property to get a loan against it does not limit its use. As long as you don’t default on your loan payments, you maintain complete ownership of the collateral. If you default on your loan, lenders might recoup their losses by selling the collateral you pledged as security.
LTV ratios can reach 100%
LTV is the percentage of a home’s worth that a lender can borrow in order to finance the property. Prospective borrowers often assume that a loan secured by real estate can be approved for up to 100% of the property’s market value when they apply for one. That is not the case, though. Although the maximum loan amount would depend on the worth of the mortgaged property, lenders often lend between 50 to 70% of the property’s market value. During the assessment, the location and age of the property, as well as its infrastructure and general stability, are all taken into account.
Only residential property can be used as collateral
Another widely held misconception about a Loan against Property is that it may only be used to secure a mortgage on a home or residential property. Nothing could be farther from the truth. As per the guidelines issued by the central bank, all lenders are supposed to accept all types of property whether it’s commercial, industrial, or even a parcel of land as collateral in addition to the residential property.
LAP has a limit on how the cash may be used towards the end
It’s also a prevalent misconception that the funds provided under a Loan against Property may only be used for specific purposes as determined by the lender. Other than for unlawful or speculative purposes, a loan against property has no limits on the final use of loan funds, exactly like other borrowing choices include personal loans, top-up house loans, and gold loans. Loan revenues can be used for a variety of purposes, which includes reasons like expanding a business, paying for a child’s college education, or providing operating capital.
LAPs have short repayment tenure
However, a loan against property can be taken out for as long as 20 years, which is contrary to what many people believe. A top-up mortgage can have a term of up to 15 years, although other loan alternatives include personal loans, gold loans, and top-up home equity loans often have terms of up to 5 years each.
Contrary to many popular beliefs, we have discussed how misinformation is being circulated regarding LAPs. Considering the size of the loan, it is not driven by the price at which the property was acquired, but rather by its current market value. Lenders consider a variety of factors when determining a property’s market value, including the location, age, infrastructure, and general stability of the area. Taking into account the borrower’s ability to repay, credit score, fixed obligation to income ratio, etc., the loan amount is determined.
If you need money for personal or commercial purposes, a mortgage loan secured by your home is an excellent option. Banks look at more than just the value of the property when approving a loan application. They also look at things like your credit score; your legal status; and the property’s age.