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What is Property Mortgage Loan? Meaning, Definition, and How it Works?
With multiple credit financing options in the market, getting a loan has never been easier. However, opting for the right kind of loan is also equally important. A property mortgage loan, also known as a Loan Against Property (LAP), is apt if you wish to mortgage your existing property to get funds. It allows you to fulfil your urgent financial needs or manage your personal/business-related expenses. Read on to know more about the working, features and types of property mortgage loans.
A property mortgage loan is a secured financing option that allows you to procure funds by pledging your residential, commercial or industrial property as security. Financial institutions like banks and non-banking financial companies (NBFCs) offer this loan to salaried employees and business owners. With advantages like flexibility in using funds, sizeable loan amounts, competitive interest rates, etc., this credit option helps you manage your financial needs without much hassle.
Some of the main features of a Loan Against Property are as follows:
1. Secured Loan
LAP is a secured loan option wherein you furnish your existing residential, commercial or industrial property as collateral. However, to get the loan, you should own the property, have a clear title and meet any minimum eligibility criteria set by the lender.
2. End-use of Funds
Loan Against Property offers flexibility in how you use the loan amount. You can use the funds procured for personal or business needs, such as education, travel, medical expenses, wedding, debt consolidation, business expansion, etc.
3. Loan Tenure
Lenders offering mortgage loans usually provide extended repayment tenures. A longer loan tenure leads to lower EMIs, easing your repayment burden.
4. Loan Processing and Approval
as the loan is backed by collateral which reduces the lender’s risk. By opting for end-to-end digital onboarding, you significantly reduce the time needed to approve your online loan application.
Financial institutions offer different types of mortgage loans, depending on the type of property you have pledged as collateral. The 3 main types of LAP usually offered by most lenders are as follows:
Loan Against Residential Property
A loan against residential property is a financial instrument that allows you to secure funds by pledging your residential home. Some of the main features of this loan are as follows:
1. Collateral: Whether it's an apartment, villa, or independent house, you can get a substantial loan by pledging your residential property.
2. Ownership: This loan enables you to raise finance against your home while retaining legal ownership. You can reside in the property during the loan tenure.
3. End-use of funds: You can use the loan amount to fulfil all your personal or business-related financial requirements.
Loan Against Commercial Property
If you own any commercial real estate, like office buildings or retail stores, you can opt for a loan against commercial property. The features of a loan against commercial property include the following points:
1. Collateral: The properties you can pledge against security for this loan include office buildings, retail stores, shopping complexes, hotels or any other commercial property. This allows you to unlock the value of your commercial assets to meet your financial needs efficiently.
2. Loan Amount: The loan amount for loan against commercial property highly depends on your credit score, the LTV ratio set by the lender, the property’s market value, age and condition.
3. Ownership of pledged property: Like a loan against residential property, you retain the ownership of your pledged commercial property to conduct business activities, lease it to another party or keep it vacant during the loan tenure.
ALSO READ :- How to Get A Loan On Commercial Property? A Complete Guide
Loan Against Industrial Property
A loan against industrial property helps you secure substantial finance to achieve several purposes including business expansion, factory renovation, machinery purchase, etc. Some of the features of this loan are as follows:
1. Collateral: You can pledge industrial properties such as manufacturing plants, warehouses, offices, data centres, and R&D centres to apply for this loan. This gives you the flexibility to use your valuable assets to meet your financial needs.
2. End-use of the funds: You can use the funds procured from a loan against industrial property for various purposes including infrastructure development, expansion and renovation, purchasing of industrial property, operational expenses, make new investments and personal use, etc.
3. Loan Tenure: The loan tenure depends on the loan amount, value and condition of the pledged security, your credit profile and repayment capacity, etc.
Top-up on Property Mortgage Loan
A top-up loan is a credit facility you can get over and above your existing mortgage loan to manage your financial needs. This loan option is especially beneficial if you have exhausted the funds procured from your existing loan and require additional finance. Here are some of the main features
1. Quick Loan Disbursal: The loan processing and disbursal process is quicker for top-up loans compared to new mortgage loans.
2. Simple Documentation: The documentation process for a top-up loan is relatively simple as the lender already possesses the documents from your existing LAP.
3. Lower Interest Rates: As you have already pledged collateral for the existing LAP, it reduces the lender’s credit risk, allowing for a top-up loan at competitive interest rates.
Balance Transfer of Property Mortgage Loan
If you have an existing mortgage loan, you can opt for the Loan Against Property balance transfer facility to transfer the loan to another lender at lower interest rates and better terms. Some of the main reasons why you should opt for the balance transfer on your mortgage loan are as follows:
1. Competitive Interest Rates: You can benefit from the lower interest rates offered by the new lender to which you are transferring your loan. Opting for a balance transfer enables you to reduce your EMI burden due to the reduced interest component.
2. Minimal Paperwork and Quick Approval: The documentation process for LAP balance transfer is usually less extensive than applying for a new loan. Reduced paperwork enables lenders to process your application faster and provide swift approval.
3. Top-up Facility: Many lenders also offer the option of a top-up loan when you transfer the balance of your Loan Against Property (LAP). This can help you raise additional funds over and above your existing loan.
ALSO READ :- Major factors to consider while applying for Loan Against Property
The interest rate for a Loan Against Property plays a vital role in deciding your equated monthly instalments (EMIs). Lenders usually consider several factors when setting interest rates for individual loan applicants. Some of these factors are mentioned below:
1. CIBIL score: Your CIBIL or credit score is essential in deciding the interest rate. Lenders look at your credit score as a sign of your creditworthiness. Therefore, having a higher credit score (750 and above) improves your chances of getting loan approval at lower interest rates and better loan terms.
2. Income: Financial institutions offering a Loan Against Property consider your income while deciding the interest rates. A stable income ensures that lenders see you as a low-risk borrower, which helps you get lower interest rates on the loan.
3. Property’s value and location: The current market value and location of the property to finalise the interest rates for the loan. Lenders typically prefer properties that have a high resale value and/or are in prime locations.
4. Loan Tenure: The loan's repayment tenure also impacts your interest rate. Selecting a longer tenure can lead to a higher interest rate as the bank/NBFC offering the loan faces a more extended risk period.
5. Loan-to-Value (LTV) ratio: The LTV ratio is the proportion of a property’s value that the lender agrees to finance as the loan. A lower LTV ratio means you borrow a lower amount against your property’s value. This leads to a lower credit risk for the lender, which may result in lower interest rates for the loan.
Lenders usually offer a mortgage loan after a detailed credit profile assessment. Additionally, they conduct physical, technical, and legal verification of the property you pledge as collateral to determine your loan eligibility. The main eligibility conditions for availing a Loan Against Property are as follows:
1. General Eligibility Criteria
• CIBIL Score: Lenders consider your credit score to determine your repayment capacity. A higher credit score (750 and above) increases your chances of getting a loan at competitive interest rates and better terms.
• Minimum Income: Banks/NBFCs usually process your loan application only if you have a minimum net monthly/annual income. However, the minimum income required may differ across lenders.
• Occupation Profile: If you are a salaried employee, a self-employed individual or a business owner, you can apply for a Loan Against Property.
• Work Experience (for salaried applicants): Lenders will usually accept your loan application if you fulfil their minimum work experience requirements.
• Business Vintage (for self-employed applicants and business owners): You can apply for a Loan Against Property (LAP) if you have been in the same business or profession for a few years, subject to the individual lender’s conditions.
• Citizenship: You can apply for a property mortgage loan, if you are an Indian citizen.
2. Property Eligibility Conditions
• Property Type: You can apply for a mortgage loan if you own a residential, commercial or industrial property.
• Ownership: You can pledge any property as security for LAP, only if you own it. If the property is jointly owned by more than one individual, the co-owners should be the co-applicants for the loan.
• Property’s age and condition: Lenders usually have the criteria for the maximum age of the property you wish to offer as collateral.
• Legal Dispute: Banks/NBFCs will consider your property as collateral only if it is not a part of any legal disputes.
Please note that a lender may also consider additional eligibility conditions while assessing your loan application.
Most financial institutions ask for your personal and property-related documents while processing your mortgage loan application. However, the final list of documents a lender requires depends on your credit profile, property type, location, lender’s internal policy, etc. Some of the primary documents required to process your loan application are as follows:
1. Personal Documents
• Identity Proof (any one): Aadhaar card, PAN card, Driving License, etc.
• Address Proof (any one): Rent agreement, Passport, Utility bills, etc.
• Income Proof: The income proof documents required to process your loan depends on your occupation profile:
o For salaried employees: Salary slips and bank statements (with salary credit) of the past few months.
o For self-employed professionals and business owners: Balance Sheet, Profit & Loss statement, Income Tax Returns.
2. Property Documents
Lenders usually ask for the following documents for proof of residence ownership:
• Sales deed or agreement
• Copy of tax registration
• Tax receipts
• Electricity bill, gas bill, etc.
Note: The list of documents mentioned above is indicative in nature. Lenders may also ask for additional documents while processing your loan application. If you’re looking for a property mortgage loan, you can consider Poonawalla Fincorp. As they offer quick disbursal with flexible EMI option.
ALSO READ :- Do’s and Don'ts of Applying for a Loan Against Property
Poonawalla Fincorp, one of India’s most trusted financial institutions, offers a Loan Against Property with a simple loan application process and swift approval. You can apply for the loan online or offline. Read on to learn the process of applying for the loan through both these modes:
1. Apply for the loan online
Step 1: Visit Poonawalla Fincorp’s official website and click on ‘Apply Now’.
Step 2: Under the ‘Select the Type of Loan’ option, click ‘Loan Against Property’.
Step 3: Select ‘Individual’ or ‘Firm or Company’.
Step 4: Enter basic KYC details, tenure, loan amount, type of property, etc. and upload all the required documents.
Step 5: Await the assessment and verification of your loan application.
Step 6: After confirmation, you will receive the loan offer.
Step 7: Approve the offer and disbursal of the loan amount.
2. Apply for the loan offline
Step 1: Visit Poonawalla Fincorp’s nearest branch.
Step 2: Fill out the application form and submit the necessary documents.
Step 3: Await the assessment and verification of your loan application.
Step 4: After confirmation, you will receive the loan offer.
Step 5: Approve the offer and disbursal of the loan amount.
A property mortgage loan is a valuable financial option for individuals and businesses to raise finances. There are 3 types of mortgage loans including loan against residential property, loan against commercial property and loan against industrial property. Furthermore, knowing more about the features, types, eligibility and documentation, interest rates, and the loan application process can help you make an informed decision about the product.
1. Should you check your CIBIL score before applying for a Loan Against Property?
Yes, you should check your CIBIL score before applying for LAP, as it will help you estimate your chances of getting loan approval. If you have a low credit score, you can take steps to improve it and increase your eligibility for availing the loan. You can check your CIBIL score for free from Poonawalla Fincorp’s website and initiate measures to improve your score.
2. How do you repay the loan amount for a property mortgage loan?
You repay the loan amount for your mortgage loan through equated monthly instalments (EMIs). The EMI amount comprises both principal and interest components for the loan.
3. Can I repay my mortgage loan in full before the end of the loan tenure?
Yes, lenders usually offer the facility of loan foreclosure for mortgage loans. Under this option, after you pay a pre-determined number of EMIs for your loan, you can pay the balance amount in full before the end of your repayment period. However, you may also have to pay some foreclosure charges to the lender.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan Against Property disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply
Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.
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