Common Myths Busted Around Loan Against Property

Property, be it commercial or residential, is an essential asset to any individual. One can reap multiple financial benefits through any type of property. A loan against property or mortgage is one form of financial arrangement that an individual can choose to take care of their financial requirements. The market for a loan against property has grown enormously in India and is expected to further increase in the near future. India's loan against property market is likely to be valued at INR 6.746 billion by 2026, expanding at a CAGR of 14%.

Compared to other loans like a business loan, a personal loan or a gold loan, LAP is a significantly better alternative for fulfilling your financial needs. This is because LAP has low-interest rates and flexible end-uses. Unlike an education loan or home loan, you can use the loan against property for various financial expenses like weddings, medical bills, education, etc. Despite such massive popularity of loans against property, certain myths continue to prevail. Many people are still hesitant to opt for LAP because of these myths. This blog will counter some common myths and misconceptions circulating the home loan against property.

Busting the Myth Around LAP

No Use of Mortgaged Property

One of the most common myths about LAP is that the property owner cannot use or live in the property pledged as collateral. However, there is no basis for that claim. A general rule of thumb is that as long as you pay EMIs on time and do not default on your repayment, you needn’t worry. However, note that it is critical that you pay EMIs on time because the lender has all the rights to sell your property to recover the outstanding loan amount if you fail to pay your dues. To remain on the safer side, calculate the EMI with a property EMI calculator and figure out the exact amount you will be paying with the duration.

Restriction on the Usage of Funds

Another common myth about a loan against property is that there is a restriction on the usage of funds. However, this is entirely false as, like gold loans, personal loans, and top-up loans, the funds secured from a loan against property can be used to manage various financial needs. Of course, this does not include speculative or illegal transactions.

High Income Bracket to Apply for LAP

While it is true that your income bracket matters a lot when securing a loan, you can still apply for a loan against property even if you fall in the moderate-income bracket. It is important to understand that various lenders, banks, and NBFCs have different minimum income eligibility for self-employed and salaried individuals. One way to secure a loan, even if you are in a low-income bracket, is to gain the lender's confidence by keeping your liabilities low and paying all the EMIs quickly.

LAP has a High Interest Rate

Much like other misconceptions, LAP loans having a high-interest rate is one of the most prevalent myths. It is crucial to understand that LAP is a secure loan backed by collateral; your property. The interest rate for LAP typically relies on the borrower’s credit score, repayment ability, and income.

Approval Procedure is a Hassle

While it is partially true that the LAP process takes a bit longer than a personal loan as it involves collateral and tons of paperwork, it is not stressful or agitating. When borrowers are applying for LAP, they need to meet the eligibility requirements and submit all authentic KYC, property and income documents to make the process smooth and hassle-free.

Only Residential Properties can be Mortgaged

Both residential and commercial properties can be pledged for a loan against property to obtain funds. Even if you own a factory or a commercial building, you can pledge it to secure the funds. That said, you must submit the complete paperwork for the property that you are pledging. Failing to do so will result in the rejection of your loan application.

Lender Takes Possession of Collateral

This is another one of those scary stories circling LAP. Your property stays with you as long as you pay EMIs on time and do not default. When you apply for LAP, you must submit all the original documents to the lender. However, you get those documents back once you make the full and final settlement.

LAP has a Shorter Tenure

Many people fear applying for a LAP, thinking it has a short tenure. Since LAP entails a high loan amount, around INR 50 lakhs to INR 1 Crore, the term is 20 years. This means that you can pay your EMIs without any hassle.

LAP is Not Safe

As long as you have an excellent credit score and trust your repayment ability, there is no harm in mortgaging the property. LAP is more advantageous than other loans as it offers lower interest rates, a top-up loan facility, and longer tenure. Before applying for a home loan top-up, ensure that you have the repayment ability for that particular amount.

Final Thoughts

Myths around a loan against property will continue to persist, and one mustn’t fall for them. A loan against property is a safe way of securing funds for your financial needs. LAP can be an excellent way to monetise your assets and fulfil various financial obligations. That said, you must read the fine print and understand the clauses mentioned in the application.

Aurum KuberX is a modern home loan service that offers a unique avenue to compare LAPs provided by different banks and financial institutions and choose the one best suited for you. Apart from LAP, you can apply for a home loan, balance transfer, and even a top-up loan in a hassle-free way. With Aurum KuberX, you can save yourself the struggle of visiting different banks, the time spent through a cumbersome process, and the fuss of tedious documentation. It truly is a modern way of acquiring financial arrangements.