Common Misconceptions About Mortgage Loan Against Property

Mr. Puneet seeks immediate cash to suit his personal needs. However, because of his lower salary, his lender will not give him a personal loan. Mr Puneet has a property, but he is hesitant to apply for a loan against the property (LAP) since a friend has warned him about the risks of doing so. But do LAPs really have so many drawbacks? We don’t believe so. That is why we are going to debunk some popular misconceptions associated with mortgage loan against property. 

  • Borrowers Can Only Avail It against Residential Property-While availing of a mortgage loan against property, the most common myth among maximum borrowers is that a loan against property is only available against a residential property. However, this myth needs to be debunked. A borrower can avail of a loan against property on both residential and commercial properties. Apart from this, the fact is, if you have a commercial property, you may avail of a higher loan amount. 
  • You Must Have a High Income-You have seen people saying that you can get LAP only if you have a higher income. Contrary to this popular assumption, you do not need to be in the “high-income category” to get a loan against a property. Although most lenders have certain requirements in terms of a minimum income for salaried and self-employed borrowers to qualify for this type of loan. But it is not necessarily mandatory to make a lot of money to take this loan as long as you can convince the lender of your ability to repay the loan. 
  • High-Interest Rate- One of the most common myths regarding LAP that is prevailing in the market is the high rate of interest. Most of the borrowers think that the interest rates on a mortgage loan against property will be high because of the rising property prices these days that results in the borrowing of high loan amounts.  But the fact is quite different; the interest rate on LAP is determined by various factors. These factors include property type, credit history, property documents, and many more. Also, the interest rates vary from one lender to the next. However, if you have strong creditworthiness and high property value, you may negotiate with your lender on the loan amount and interest rate.
  • You Cannot Use the Mortgaged Property- Most borrowers are concerned that to obtain a loan, if they mortgage their property, such as residential or commercial, they will no longer be able to use it. This, however, is not the case. The borrower has unlimited freedom to use the property even after taking out a loan against it. Most borrowers pledge their living house or commercial premises, which they use to conduct their daily business, as collateral for a loan. The borrower can live in the property or utilise the commercial office that is mortgaged with the lender as long as he or she does not default on his loan repayment EMIs. 
  • Lengthy Loan Process- Just like any other loan forms, getting a loan against property is also not difficult these days. The borrower can simply obtain a loan as long as he or she meets the loan eligibility criteria set out by the specific financial institutions. Furthermore, many financial institutions offer an online application process. All you have to do is visit their website, follow the required steps and apply for a mortgage loan against property.
  • 100% LTV Ratio- There is a common misbelief that when you apply for a mortgage loan against a property, you get 100 per cent of the loan to the value of your mortgaged property. However, the fact is quite different from the myth. A LAP is usually provided up to 60% to 80% of the property’s worth. The LTV ratio varies from one financial institution to another. As a result, a borrower must keep this in mind when pledging his or her property.

To Conclude- 

If your needs are high and you want considerably higher funds, a mortgage loan against property is the best-suited option for you. And as we have busted the common myths associated with this loan form, now you have got no reasons to worry about before availing of a LAP for your financial needs.