Questions About Loan Against Property Answered

Introduction

You take a loan against a property by using an existing property as collateral. The loan taken can be used to fund a variety of purposes. You could get up to 80% to 90% of the property's value as a loan.

Frequently asked questions about loans against property

1)  What are loans against the property?

A borrower purchases a loan against a property by pledging an existing property.  The value of the property is taken into consideration to provide a loan for the borrower.

2)  What can the loan against property be used for?

A  loan against property is a multi-purpose loan. It can be used for both business and personal use. The funds from a loan against property can be used for any borrower's expenses, from medical costs to a significant life event.

3)  Does a loan against property need collateral?

A loan against property is a secured loan where the borrower's property is used as a mortgage in exchange for the loan.

4 )  What are the requirements to avail a loan against property?

The lender would judge the borrower's income and repayment capacity. The lender also takes into account the borrower's age, education, number of dependents, job, spouse's salary, debt, assets, credit history, and stability of occupation before providing the loan. Apart from all these, the number one consideration is the market value of the property that is used as collateral.

5)  Are there any tax benefits on loans against the property?

Under Section 24 (b) and section 37 (1) of the Income-tax act, a borrower can avail several tax benefits on a loan against property. These deductions on tax are only on the interest paid in the form of equated monthly instalments.

6)  What is the tenure for a loan against property?

Loans against property generally have a tenure of up to 15 years. Some lenders even offer a borrower flexible repayment tenors on loan against property.

7)  What is a loan to value?

That is the maximum amount of loan that a borrower can receive based on the property's current market price that is used as collateral. It is a ratio of the market price of the property to the loan that is received. The lower this ratio is, the better chances a borrower has to avail a loan against a property with certain benefits. Most banks usually lend about 60%-65% of the mortgaged property's value as the loan value.

8)  Who has the ownership of the pledged property?

The documents of the property are handed over to the lender when the loan is purchased. Once the borrower repays the loan through EMIs the documents are handed back.

9)  What is a top-up option?

Most lenders offer the option of top-up on the original loan offered. With this option, the borrower can receive more funding on the existing loan. This extra loan can also be used for several purposes.

Additional read: How to file ITR for home loans?

Conclusion:

Before purchasing a loan against a property, a borrower needs to be aware of all the intricacies and details in the paperwork. Unless the borrower has a clear idea of the terms and conditions in a loan against property, the borrower might later find it to be a huge hassle to pay off the loan and settle the debt.

Disclaimer - ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

ICICI Securities Ltd. acts as a referral agent to ICICI Bank Ltd. for loan against property related services & the loan facility is subjective to fulfilment of eligibility criteria, terms and conditions etc.