Mortgage Loan

A Loan Against Property is one of the most convenient type of loan available in the market. Although there are various avenues of availing cash, a loan against property or lap is probably the best option there is, especially when you want large funds for:

mortgage-loan –   expanding your business

–   higher education

–   wedding expenses

–   purchasing large equipments and machinery

–   buying a property (commercial / residential)

–   closing off other high cost loans

There are so many different reasons you might want to use your money for, point here is to have an easy access to it, as and when you need it. Although the convenience aspect cannot be questioned, there is the concern that the interest rates for borrowing against your property are higher when compared to other types of secured loans such as housing loans. However, there are several advantages that are unique to availing a loan against property which make them a popular choice despite their higher rates. Let us take a look at some of the main advantages of a LAP:

1.    Loan of up to 70% of the value of your property. The maximum loan amount that can be availed is up to 5 crores (as provided by most banks).

2.    There is the option of Overdraft wherein you can borrow a large amount depending on your requirement despite having insufficient balance in your account. You can avail this after providing your property as a collateral. Your overdraft limit will be determined by the value of your property as well as your account history.

3.    The total processing time is much less when compared to the processing time of home loan applications.

4.    If the value of the property has risen during the tenure of the loan, the owners also have the option to avail a top-up on their existing loan. This is especially useful for business men.

5.    There are convenient repayment options such as part payment or foreclosure and a more than sufficient repayment tenure of 5 to 15 years.

6.    You can easily borrow against a residential or a commercial property.

If you are looking for large funds in a short span of time, then you can definitely consider availing a loan against your property. Of course being eligible is a whole other story. Want to know more about being eligible?

A Loan Against Property or a Mortgage Loan is one of the easiest forms of lump sum money. Irrespective of the purpose you require the money for, you may very easily borrow by pledging your property to a bank. Though the main reason you are borrowing such a large value is because you are short of money in the first place, your application may not get a second look if you don’t have proper income proof submitted along with it.

So, why should anybody be asked about their income while applying for a mortgage loan? The simple reason being: a property whether it is residential or commercial is not liquid, meaning it can’t be sold off easily should you fail to pay back your loan. Lets understand this better with an example:

Shweta is looking for funds to expand her business (a clothes boutique), she is looking to pledge her house (she’s currently living in) in order to get some of the funding she is looking for. When she went ahead and applied for the said loan, her income came into question. Although her property was worth 60 lakhs, and the loan amount she required was 25 lakhs; she was told that she would get that amount only if her income allowed her to be able to repay the loan of 25 lakhs.

Hence, her loan for 25 lakhs will be sanctioned provided, she fulfills all the other eligibility criteria.

The reason why lending institutions double check income proofs of applicants is because it is better to receive emis rather than trying to sell the pledged property as this will take inordinate amount of time and may not appreciate in value in the future. This might probably result in a loss to the bank, which is why your application will be carefully reviewed. Unless and until they are convinced of your repaying capacity, your loan might not get sanctioned.
However, you can avail great deals on your mortgage loan so long as your documentation is right.

When you avail a loan against your property, there are two main factors that determine your eligibility:

a) Your income
b) Value of your property

For instance, if according to your property you are eligible for 60 lakhs and according to your income you can avail only 30 lakhs, however your required loan amount is 45 lakhs. Then in such a situation you may get a co-applicant on board your loan application. So that, both your incomes may be considered together to increase the overall loan eligibility. Here are some key points to be kept in mind when you are looking for a co-applicant for your loan:

In some cases, the co-applicants are mandatory depending on their relationship to the property or the applicant, here are some examples:

–   All co-owners of the property (which you provide as collateral). It is not mandatory to consider their income, unless you want to increase the loan amount you are eligible for.

–   However, it is not compulsory for co-applicants to be the co-owners of the property in question.

–   For a partnership firm, the key partner.

–   For a company, individuals who own more than 76% of shares.

–   If a company or a partnership is going to be offered as collateral, then all the directors / partners need to act as co-applicants.

–   In case of a joint family’s income being considered, then the head of the joint family i.e. Kartha must be a co-applicant.

–   The minimum age of the secondary applicant must be at least 23 years and a maximum of 60 years if the income is going to be considered.

–   If the income of the co-applicant is not going to be considered, then the minimum and maximum ages are 18 and 80 respectively.

Depending on the bank where you have applied, the specific conditions for each application may vary, but here are some common examples of who can be a co-applicant:

1)   Co-owners of the property
2)   Spouse of applicant
3)   Brothers (both primary and secondary applicant must be brothers)
4)   Son and father
5)   Son and mother
6)   Unmarried daughter and parents

In some banks, even members of the in-law’s family can be a co-applicant.

One of the frequently asked questions is why can’t a daughter and a parent together apply for a loan against property?

The main reason being: once a daughter is married, legally she belongs to a different family, and there is a greater chance of disputes being raised. Unless the property is in the name of the daughter, it is not advisable for the daughter to jointly apply with her parents.

Note – the term co-applicant and secondary applicant mean the same.