5 Myths Busted about Loan Against Property

A loan against property offers a considerable amount of funds that can be used to mitigate any emergency needs without hassle. From education fees to business needs, the no end-use restriction of loan against property proves extremely beneficial for borrowers. 

By leveraging your property, you can acquire a high loan to value ratio of up to 90% of a property’s value. Furthermore, the affordable interest rates and a considerable loan repayment tenor.

However, several myths shroud the concept of loan against property and must be eradicated to ensure borrowers do not fall prey to these misconceptions.

5 myths about Loan Against Property

• Borrowers cannot use the pledged property

It is often believed that availing loan against property pose a restriction on the usage of the property. However, this myth is entirely false. Availing a loan against property only provides conditional ownership to the lender of the house only until the entire loan amount is not paid in full. The borrower remains the lawful owner of the property until and unless he/she defaults. Hence, you enjoy complete freedom to use the property without any restriction. 

• LTV can go up to 100% of the market value of your property

Loan to value ratio or LTV is the proportion of the market value of your property that a lender can finance through a loan against property. Often there is a misconception among borrowers that they can avail an amount equivalent to 100% of the total market value of their property. 

However, one would be mistaken to think so. Usually, lenders sanction a loan amount of up to 75-90% of your property’s market value after evaluating several factors like resale value, property age, etc.

• High interest rates

Loan against property is a secured form of credit. Thus, unlike other financing options like personal loan, these loans boast of considerably lower interest rates. Moreover, loan against property interest rates vary between different lenders and are determined by evaluating a borrower’s credit history, CIBIL score, and source of income and value of a property. In fact, credit score affects loan against property eligibility and interest in a considerable way. 

• Only residential property can be mortgaged

This is by and large a false notion. Borrowers can avail a loan against property by pledging residential or commercial assets. Some lenders allow pledging industrial property as well for the loan. 

• Loan amount is based on the purchase price of a property

Another one of the major misconceptions is that the principal for loan against property is determined by assessing the current market value of your property. The evaluation of your property’s market value involves several factors like location, age of the property, geographical aspects, infrastructure stability and more. Apart from this, the loan amount will also be determined by a borrower’s repayment capacity and credit history.

Furthermore, if you are applying for a loan against property, ensure to check the pre-approved offers provided by various financial institutions. These offers are available on several financial products like home loans, loan against property, etc., and make credit approval quick and convenient. Provide your name and contact number to check your pre-approved offer. 

A borrower must stay clear of all such misconceptions while applying for a loan against property and make an informed decision by thoroughly comparing offers and features of different credit products. Also, one must go through the documents needed to apply for loan against property for easier loan processing.