A Loan Against Property (LAP) is one of the most common practices
used by individuals for availing high-value funding for various
purposes. Loan Against Property can be used for financial and personal
purposes such as hosting a wedding, funding overseas education, and
travel. This type of loan is secured finance that is taken by
mortgaging a personal or commercial
property.
When it comes to real estate, the prices of
residential and commercial properties fluctuate due to a variety of
factors. These factors include the location of the property,
supply/demand, interest rates, and property market performance.
If you have mortgaged your residential or commercial property for
borrowing funds, falling property rates can have a significant impact
on the loan process. The lender might take the necessary steps, which
might result in inconvenience for the borrower.
While borrowing a
Loan Against Property, the lender offers a loan up to a certain
percentage of the value of the mortgaged property. This is known as LTV
(Loan-to-Value) ratio. For instance, if the value of the
property is ?1 Crore, the maximum loan for the property will be ?75
Lakhs, which is 75% of the total value of the property. The loan also
includes registration and stamp duty charges.
The mortgaged
property acts as a security for the lender, which makes him a
temporary owner of the property. If the borrower fails to pay the loan
amount or defaults on the loan, the lender can sell the property to
recover the loan amount.
To tackle such situations, the lender
prefers the value of the mortgaged property to be equal to or higher
than the loan amount. If the rate of the mortgaged property falls, the
lender may ask the borrower for additional collateral, or to pay the
difference amount at the earliest. However, if the borrower fails to
pay the difference immediately, the lender may seize the property and
term the borrower a defaulter.
A few other pointers that you need
to know when the price of your mortgaged property falls include:
- Lenders would want to avoid any losses while sanctioning a property mortgage loan. They will be unlikely to bear any risk that comes with the property value. In such a case, they will ask the borrower to pay the difference in the form of any investment. It could include another property, shares of gold. In addition to this, the borrower can also pay a one-time margin amount if the rate of the property falls to a greater extent.
- While providing the additional property, it is imperative to keep in mind that the value of the property is not volatile and does not fluctuate from time to time. If the value of the additional property falls, the lender may ask you to pay the difference for the additional property as well.
- Many borrowers consider paying the loan installments in smaller amounts to reduce the principal value. This makes managing the principal loan amount easier if the rate of the property falls.
- If you have a good credit score, history, and repayment record, the lender might consider negotiation as well. You can ask the lender to allow more time for repayment if you have regularly paid your EMIs previously.
- To avoid loan
payment delay, you can ask for a lower loan amount than the property
value. If the rate of the property falls, it will be easier to pay
the deficit amount.
What happens if you fail to pay the EMI?
If your delay the EMI payment due to unforeseen circumstances, it
could have a direct impact on your CIBIL score and credit history. The
liability of paying the penalty and late fee will fall on the
borrower, along with the EMI that is payable next month.
Apart
from this, if you even miss a single EMI payment, it will reflect on
your credit history, dropping your credit score by 50-70 points. This
will further impact your loan procedures and might cause hindrance in
loan approvals. If you take quick action to fix the minor default, you
can recover from the impact.
In case of genuine circumstances
such as medical emergencies and sudden unemployment, you may reach out
to the lender to find a solution. You have 90 days to pay the loan
amount, or else it will be declared as a non-performing asset (NPA).
If you are still unable to pay the loan amount, the lender has full
rights to seize your property and resell it to recover the amount.
What are the advantages of Poonawalla Fincorp’s Loan Against Property?
Our Loan Against Property solution is carefully curated to assist
you with high-value expenditures. With competitive rates and flexible
loan tenure, you can leverage your assets in the most productive
manner.
We offer a higher LTV ratio on the property’s market
value so that you can avail higher funds to achieve your goals. Our
quick and simple Loan Against Property application will ensure that
you get approval and disbursal at the earliest and seamlessly.
We
accept various types of properties for a property mortgage loan,
giving you the flexibility to choose your assets wisely and leverage
them in the best way possible. We offer loans against properties
ranging from residential and commercial to industrial and warehousing properties.
