Whether you have a residential property, commercial property, or agricultural land, you can use it to avail of a loan against your property. A Loan Against Property (or LAP) is a type of loan which can be availed by using the property as collateral.
Such a loan can be obtained for a wide variety of purposes such as starting or expanding a business, paying for higher education, or consolidating high-interest debt (such as a Personal Loan or Credit Card debt).
Rather than keeping your property dormant, you can effectively use the money from a Property Mortgage Loan to meet your various financial goals.
Here are six ways in which a LAP can help you to make use of your property.
Avail a high loan amount
You can avail of a loan against commercial property or residential property for up to Rs.5 crores. This loan amount is enough for almost any purpose. Since it is a secured loan, the loan amount depends on the value of the property that you pledge.
For example, if you have a property that is worth Rs.6 crores, then you will be able to avail of a loan of up to 70% of the property’s value which is Rs.4.2 crores. Every lender has its own LTV or loan-to-value ratio. The higher the LTV, the higher the loan amount that you can avail of against your property.
Before sanctioning the loan, the lender will evaluate the market value of the property that you intend to mortgage. This market value will be calculated by taking into consideration the size of the property, the type of property, the location of the property, the age of the property, and so on.
You can further capitalize a LAP to receive tax benefits. The interest payment on your LAP is eligible for tax deduction under Indian tax regulations. Please note that the tax deduction is available only on the interest amount and not on the principal payment.
However, to qualify for tax benefits, the LAP must be for specific purposes. If you’ve availed of a LAP for meeting personal expenses (such as wedding, education, or travel), then the interest payments will not be eligible for tax deductions. However, if you’ve availed a LAP for purchasing residential property (under section 24 (B) of the Income Tax Act, 1961) or towards fulfilling business goals (under section 37 (1) of the Income Tax Act, 1961), then you can claim a tax deduction under the mentioned rules.
Before taking a loan for tax deduction purposes, do consult your Chartered Accountant to confirm whether you’re eligible for a tax deduction.
The repayment tenure of a loan is the amount of time within which you have to fully repay the loan along with interest.
You can avail of a LAP for a relatively long tenure. A longer loan tenure means that you will need to make lower payments on a monthly basis. This will make it easier for you to service the loan. Usually, a LAP can be availed for a tenure of around 10 to 15 years. Hence, you will get ample time to repay the loan.
The longer repayment tenure also means that you can use a Property Mortgage Loan for a wider variety of purposes. If the purpose of the loan is non-commercial, then a longer repayment tenure can help with servicing the loan more easily without wreaking havoc on your monthly budget.
Secured loans usually carry lower interest rates compared to unsecured loans. A secured loan is a loan in which the borrower has provided collateral that can be used by the lender as a safety blanket in case of the inability of the borrower to service the loan. Since a secured loan carries a lower risk for the lender, the lender can offer the loan at a lower interest rate.
A LAP is a secured loan because you pledge your property to avail of the loan. Hence, the interest rates of a LAP are lower than unsecured loans like Personal Loans or Credit Card debt.
The interest rate of a LAP can be as low as 9%. However, the interest rate will depend on a variety of factors such as the policy of the lender, the borrower’s credit score, the type of property being mortgaged, the amount of the loan, and so on.
A lot of people have the misconception that when you avail of a LAP, the property you mortgage belongs to the lender. However, this is not true. When availing of a LAP, the mortgaged property will still belong to you. You retain complete ownership and control over the property (however, you cannot sell the property) as long as you are paying your monthly payments timely.
You can still live in the property, use the property as an office, make changes to the property, and so on. Hence, a good way to make use of your property is to take out a Loan Against Commercial Property which provides you with liquidity that you can use for constructive purposes such as building your business or taking care of your dependents.
Loan processing has become much quicker these days. Gone are those days when you had to wait for weeks before you receive the loan amount. Lenders understand the urgency of borrowers when they apply for a loan. Hence, a lot of care has been taken to ensure that loan processing is efficient.
Nowadays, if a loan is sanctioned, you will receive the loan amount within twenty-four hours or so. Further, loan processing is also done much quicker, so that you can expect a response from the lender within a few days of making a loan application.
Overall, this ensures that you receive timely funds as and when you need them.
A Property Mortgage Loan is a great way for you to make use of your residential or commercial property. You can avail of a LAP even if you have leased out the property to someone else. If you’re looking for funding for commercial or personal reasons, then a loan against commercial property or residential property can be an excellent choice.
A term loan is a loan that is given for a fixed duration of time and must be repaid in regular instalments, also known as EMI (Equated Monthly Instalment). These loans are usually extended for a longer duration of time which may range from 1 year to as long as 30 years.
Todays finance and business sectors use personal and Professional Loans for a range of things. The days of being unable to advance your career or profession due to a lack of cash are long gone.