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.
Receive tax benefits
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.
Get a long repayment tenure
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.
Also Read :- Know about property types for a loan against property
Avail low interest rates
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.
Retain ownership of your property
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.
Receive the loan amount quickly
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.
Wrapping up
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.
