A loan against property is one of the mos accessible financing options today if you own a property and are willing to utilise its underlying value through mortgage. These are types of secured advances where such a property acts as a mortgage against which you avail a mortgage loan. Depending on the type of property extended for mortgage, you can choose among different loan against properties options.
Now, while these are common financing options suitable for meeting big-ticket expenses, there are several myths as well which surround them. In case you believe such myths, they can easily prompt you against the usefulness or accessibility of these loans, keeping you from the several benefits that such a financing can extend in the long run. So, here’s a take on some common myths that one can get to hear about property loans, and the truths behind them.
Top 5 Myths About Property Loans You Must Not Believe
1. You need to qualify for the high-income bracket to avail financing
When it comes to loan against properties, a common myth you can come across is that it is available only for individuals qualifying in the high-income bracket. It is a completely false information though. Lenders provide a property loan against the mortgage of an approved property, which shifts maximum of the risk associated with lending to such mortgage, thus lifting the burden of bearing the borrowing risk from individual income.
You would only need to meet as much of minimum monthly income as suits your affordability based on the loan amount sought. For the purpose, you can use a property loan EMI calculator and determine the loan amount that keeps repayments affordable, and apply for a loan accordingly.
2. Use of the property so mortgaged cannot be done
Many people are also of the belief that you cannot use the property that you have mortgaged for availing the advance. This fear of forfeiting property use by the lender thus keeps people from utilising the available asset for raising necessary finance. It is not true though.
In a mortgage loan arrangement, the lending institution only keeps the rights to property sale with them, allowing the borrower to use such property as used previously. It thus leaves property possession to the borrower only. So, in case you utilise your residential property for availing a property loan, the possession of such property remains with the borrower only, leaving its usefulness intact. The only catch is that you cannot undertake any activity that undermines the initial value computed for the property.
3. Purchase price of the property is considered for LTV calculation
It is a common notion among people that lenders consider the purchase price of assets for the purpose of LTV calculation, based on which the amounts of loan against porperties are calculated. In reality, lenders actually consider only the current market price of such a property for the purpose of LTV computation. Here, you need to understand that the LTV or Loan to Value ratio represents your maximum loan availability as a percentage of the current market value of such mortgaged property.
In the case of loan against properties, the LTV can go as high as 90%. So, if your property’s current market value stands at Rs.10 Crore, you can avail financing of up to Rs.9 Crore easily as property loan.
4. You can use only a residential property to avail the loan
It is also a common information available among individuals that a property loan can be availed against a residential property only, which is not true. Irrespective of whether you own a residential or a commercial property, these mortgage loans are up for grabs if such a property is in a good condition to be used as a collateral.
5. As high-value advances, property loans attract high rates of interest
Another myth that people strongly believe is that loans against property being high-value advances, also attract the highest rates. It is entirely untrue. In fact, the opposite of this myth is what brings people to availing these loans. A loan against property, being a secured advance, brings down an applicant’s individual risk to a steep low, thus allowing lenders to extend financing at the lowest rates.
You can thus avail these advances affordably with interest rate on loan against property reduced to minimal. You can further work up o your borrowing profile for better chances of availing it at lower rates.
Some additional perks of these loan against properties is that you can avail them for a loan tenure, which makes EMIs affordable. The overall financing value is high too, which makes it a suitable funding option to meet big-ticket expenditures.