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Why Take a Loan Against Property



Your son will soon be in college and plans to do an MBA. You urgently need money for your daughter’s marriage. A personal loan immediately comes to mind. The interest rates charged by the bank for the personal loan is quite high. (The interest rates could be as high as 14-22%). How would you repay your personal loan? Is there a better alternative to a personal loan? In this time of need you remember your house and decide to take a loan against property.

What is a loan against property?

The loan against property is a secured loan (collateral is your property). If you own a house/property with a clear marketable title then your bank will sanction you a loan against your property. The bank will sanction you a loan against 60-70% of the value of your property.

The rate of interest charged is around 12-16%.Your property/house should have no mortgages (encumbrances) on it. The property continues to be in your name even though a loan has been taken against it.

So why take a loan against property?

It unlocks the value of your property
Your property appreciates (increases in value) with time. If you reside on the property this increase in the value of the property does not benefit you. You can unlock the true potential of your property by availing a loan against it. If you avail a loan against your property when its value is high you can avail a huge quantum (amount) of loan.

The tenure of the loan
The loan against property comes with repayment tenure of around 10 years which can even be extended to 15 years in case you find making the repayments difficult.

The amount of loan you can avail
You can get a higher quantum of loan by availing a loan against property than say a personal loan. This loan is secured against your property and you can get say 60-70% of the value of the property. The bank has no worries as they have a security in case you default on your repayments.

The property continues to be in your name
Your property is merely pledged and you continue to be the owner of the property. You can reside on the property or even rent it out and earn an income on the property. As long as all the owners give consent to take a loan against the property (if there is more than one owner) you can easily avail a loan against your property.

Your loan is sanctioned easily
The bank sanctions your loan easily as they have collateral (security).All you need to do is to show the proof of income so that the bank is confident that you will make the repayments in time.

You have the refinance option
The value of your property increases with time. In a particular year the value of your property may be INR 40 Lakhs. You get a loan against 60-70% of its value. A few years later the value of the property is INR 60 Lakhs. As the value of the property has increased you have the option of availing an additional amount of loan against the same property using the refinance option.

You want to start your own business

You definitely should consider a loan against property. The interest rates charged by the bank are lower than most types of loans baring a home loan. A loan against property helps you to unlock the true value of your property. You already own the property (The title of the property is clear and marketable).Your property/house appreciates (increases in value over time).You could put this property to use (increase in its value) by getting a higher quantum of loan sanctioned against it.

If your property is worth INR 40 Lakhs in the Year 2011 you get 60% of its value as a loan against it which is INR 24 Lakhs. The same property in the Year 2013 might be worth 60 Lakhs and you get 60% of its value as a loan which is INR 36 Lakhs. The value of your property increases with time and so does the quantum of loan you can avail against it. You learn from this article that the loan you so desperately need might not be so difficult to obtain. Your property could lend you a helping hand in getting a loan at a very decent interest rate.

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