Pros & Cons of Loan against Property

Loan against property is a process of mortgaging the property documents to the bank to avail liquid cash in hand. The borrower can avail 60-70% of the property value as a loan against the property’s market value. The funds raised against the loan against property can be utilized for buying a new property, renovation of the property, medical purpose, and travel purpose. After getting the liquid cash in hand, the borrower can utilize the funds according to the need. The borrower is charged interest rates of 9-15% per annum, and the maximum tenure is 15 years for the property being mortgaged.

The loan against property is beneficial to the borrower as the borrower does not have to end up the savings from the bank account; instead can avail of loans and repay it with a long tenure through monthly installments. In the case of a loan against property, if the borrower utilizes the funds to purchase property, then the borrower can avail income tax exemption only on the interest repayment. The bank allows keeping the property possession with the owner even during the loan’s tenure. In default, the property can be sealed by the bank as part of the loan recovery process.

Also, in case of default or delay in paying installments, the bank may charge a heavy penalty to the borrowers. And also, the credit score of an individual may get reduced, which can lead to rejection of future loans to the borrowers. Thus the repayment of the loans is necessary for the borrower. The loan against property helps the borrower avail loans easily from the bank without any rejections. There is a surety amongst the lenders against the surety of recovery of the loans. The banks may reject the loans only in case of the property titles not being clear. The banks also charge processing fees to the borrowers for the processing of loans.

In case of a medical emergency, banks may process the loans faster for the applicant to pay the installment amount. In other cases, the bank may verify the property documents and process the loans within seven days. The banks may approve the loan against the property even in case of a lower credit score as the borrower keeps the mortgage of the property with the bank and thus provide loans against the mortgage, which can be recovered against the default by the sale of assets.

Following are the benefits of a loan against property:

• The loan against property helps avail liquid cash in hand to the borrower by mortgaging the property documents.
• The borrower can continue to use the property even while availing of loans as only the documents of the property need to be kept as a mortgage to the lender.
• The liquid cash available can be used for any purpose; thus, the bank does not ask for the money being spent wherever to satisfy one’s personal needs.
• The borrower is charged with attractive interest rates starting at 9% per annum for the loan against property.
• The loans can be availed easily as there is surety amongst the lenders to recover loans.
• Banks may also consider approval of loans if the lower credit score as the mortgage of documents is kept with the borrower.
• Loans can also be sanctioned of a higher amount even in low salary as the mortgage makes surety for recovery; thus, the borrower can avail loans of a higher amount at their own risk.
• The credit amount which can be availed is as high as 70% of the property value.

Following are the Cons of the loan against property:

• Banks may reject loans if the property is a dilapidated building or an illegal encroachment, or else the condition of the property is found in a very poor state.
• A loan against the property is not exempted under the income tax act. Thus the borrower cannot avail of tax benefits. Only in case of purchase of property tax benefit can be helped on the interest amount.
• Banks have the right to sell the property; thus, if the borrower cannot repay the loan, the borrower may lose their property to the bank.
• Banks may reject the loan application if the applicant’s credit score is extremely poor or unsatisfactory.

Thus for availing the loan against property, the borrower should have property documents with clear titles. The loans can only be availed against the property documents with clear titles. Arranging liquid cash in hand is easy and quick rather than selling the property. Thus, it is recommended that the borrower avail loan against the property if the case of requirement of the funds is for personal use.