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.
How Does a Property mortgage loan Work?
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.
Features of a Property Mortgage Loan
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.
Types of Property Mortgage Loans
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
Interest Rates for a Property Mortgage Loan
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.
Eligibility Criteria for a Property Mortgage 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.
Documents Required for a Loan Against Residential Property
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 Document
- 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:
- For salaried employees: Salary slips and bank statements (with salary credit) of the past few months.
- 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
How to Apply for a Loan Against Property from Poonawalla Fincorp
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.
To Conclude
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.
Frequently Asked Questions
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.