1/3rd of assets under the management of Housing Finance Companies comprised loans against the property at the end of FY2019. These non-housing loans will show massive growth between 2020 and 2027 as per studies. Such loans will also help HFCs grow by 12 to 14% between 2020 and 2021.
Even though a loan against property is one of the better alternatives to unsecured loans, there are several myths associated with these which make one hesitant to apply.
Some of those common myths have been given below –
- Mortgaging your home is a risky affair
Most individuals consider that mortgaging one’s property, especially if it’s a residential property, is a risk. Also, there is another myth that once you mortgage a property, you cannot rent it out anymore as financial institutions take possession of it immediately.
However, this is only a myth as one can continue to use a property or live in it even after mortgaging it as collateral. Moreover, there are no risks associated if you have a financial plan and make sure that you are regular with your payments.
You can use a loan EMI calculator to find out the monthly installments that you need to pay every month along with the total interest amount and the total amount payable. It will enable you to frame a proper financial plan before applying for a loan.
- The loan can only be availed against residential properties
This is one of the most common myths that says a loan against property cannot be availed by mortgaging a commercial asset. Nevertheless, this is not the case. One can avail loan against any kind of property as specified by the lender. It can be a commercial as well as residential property or even an immovable asset like heavy machinery.
Borrowers can also provide an empty plot owned by them as collateral to avail such loans. Therefore, one should consult his or her lending institution for a full list of properties that can be mortgaged.
- High credit scores guarantee quick mortgage loan approval
A credit score is one of the factors that determine whether you are eligible for a loan against property or not. However, a high credit score may not guarantee a fast approval of your loan application. It is because lenders consider other factors such as your age, your employment status, and your repayment capacity to determine your eligibility.
Consequently, before applying, you should check whether you qualify for a loan against property by meeting the eligibility criteria.
- The loan amount will be equal to the property’s current value
More often than not, borrowers assume that when they opt for a loan against property, the loan amount will be equal to the value of a property that is being mortgaged. This is a false assumption as lenders never sanction the full loan amount.
One can only avail of a loan that is around 60%-70% of the asset’s total value. Therefore, one should keep this in mind while choosing a lending institution and opt for one that sanctions a high loan amount against the collateral.
- The available loan amount is only based on the property’s value
This is another misconception when knowing what is LAP that discourages individuals from opting for the same. Lending institutions consider several factors while calculating the loan amount such as debt-to-income ratio, the current market value of the property, borrower’s employment status, and so on.
Additionally, an applicant should check the lending institution’s website to gain an idea regarding how much loan he/she can avail depending on their occupation. Now that you know what is a loan against property and the common myths associated with it, you should also know the list of documents needed to apply. Borrowers can also quickly apply for such loans online by following some simple steps.