Common Myths About Loan Against Property

Does taking a Loan Against Property (LAP) mean that you lose ownership? Is taking out a high-interest loan better than a LAP? 

A LAP can provide substantial funds for various purposes like education, business expansion, wedding expenses, medical emergencies, and so on. However, there are myths or misconceptions surrounding them that can confuse potential borrowers. Let us take a look at the common myths about a property mortgage loan or LAP and the reality behind them.

What is a Loan Against Property?

LAP or property mortgage loan is a secured loan that you can avail of from financial institutions to meet your fund requirements. You get the loan by pledging your property, which can be residential or commercial, as collateral. Being a secured loan, you can get higher loan amounts than unsecured loans like personal loans. Among other factors, the amount depends on the value of the property. Depending on your eligibility, you can get competitive interest rates and flexible repayment options.

5 common myths about a Loan Against Property

Myth 1: Taking out a LAP means losing ownership of property

Reality: LAP allows you to retain complete ownership of your property and you can continue using it freely. The property simply acts as a safety net or security for the lender in case the loan is defaulted. If this happens, the lender has the right to recover the outstanding amount by selling the property. 

Myth 2: LAP is only for property owners without other options

Reality: LAP can often be preferred by borrowers due to lower interest rates, higher loan amounts, and longer repayment tenures compared to unsecured loans. 

Myth 3: You can get a loan equivalent to the full value of the property

Reality: You can never get the full value of the property as a loan. Depending on the lender's policy, you can get up to 70%* of the property value as the loan. 

Myth 4: A high-interest loan is better than a LAP

Reality: There are certainly other options to consider such as unsecured loans, especially for borrowers with strong creditworthiness. However, LAPs, as secured loans with your property as collateral, can offer lower interest rates than unsecured loans. It is important to remember that the interest rate and other loan terms will depend on factors such as your credit history, property value, income, and so on.

Myth 5: Only residential properties can be put up as collateral

Reality: With most lenders, you can put up both residential and commercial properties as collateral, as long as you can provide the relevant property documentation.

How to apply for a Loan Against Property

Let us look at the general process involved in applying for a loan against property:

• Check eligibility criteria beforehand, which may vary depending on the lender, to increase your chances of loan approval. It typically includes age, income, credit score, property type, and ownership.
• Keep the necessary documents, such as KYC proof, income proof, and property documents, ready to speed up the application process.
• Research and compare LAP options from multiple lending institutions to find the best interest rates, loan terms, and processing fees.
• You can then apply online or offline by visiting the lender’s branch. Submit the documents and provide accurate details requested by the lender.
• After verification of the approval and the property, the loan amount can be sanctioned. Once you sign the loan agreement, the amount can be disbursed directly to your account.

Conclusion

LAP is a valuable financial product that can offer significant funds against your property while letting you retain ownership and usage rights. Additionally, you can get advantages such as competitive interest rates and longer repayment tenures compared to unsecured loans. By understanding the realities behind common myths, you can make informed decisions about LAPs. 

SMFG India Credit offers customised property mortgage loans to salaried employees, self-employed individuals, and SMEs. You can get loan amounts of up to 70%* of the property’s market value, attractive interest rates, and flexible tenures up to 180 months*. You can use our Loan-to-Value (LTV) calculator to estimate the maximum amount you may get.  Apply online or contact us to find out the best loan options and interest rates for your needs.