Personal loan against property ( LAP ) is a secured loan in which the borrower has to mortgage his property for getting the loan amount. For doing this, the borrower should be the legal owner of the property and should contain necessary documents to prove it.
People take the assistance of loan against property to solve their various financial problems that require hefty amounts. Obviously, one can’t take such big amounts so easily through unsecured personal loans.
So, personal loan against property is a good option in this scenario because you can borrow big amounts without much hassle through this. However, you should know a few things before taking a personal loan against your property.
Floating Rates of Interest Applies to this Loan
Floating interest rates are the rates that can change as per the market demands. These rates don’t remain the same and are permissible to go up as well as down. Many people don’t know, but personal loan against property is accompanied by the floating rate of interests.
It happens as the value of the property that you have mortgaged changes with time. Banks inform about this to the borrower beforehand. It is quite risky as the interest rates can go really high sometimes. So, keep this thing in mind.
Banks Evaluate the Property to Decide the Loan Amount
You can choose your loan amount, but the maximum limit would be decided by the lender bank only after evaluating your property. The appraiser of the bank would judge the value of your property on the basis of its age, its condition, and other things.
The maximum limit of loan amount would be around 40% to 60% of your property’s total value. Remember that, the loan application can also be rejected if there would be any issues in the property papers or the property is disputable.
Loan to Value Ratio Differs in Various Banks
The ratio of loan amount provided by banks on the basis of property evaluation is known as loan to value ratio. This ratio differs from bank to bank so, you should contact the various bank in case you need a hefty loan amount.
Doing this would be helpful in finding a lender bank whose loan to value ratio is quite high as compared to others. Banks of private sectors offer up to 75% of the property’s value, while the limit is usually up to 65% in public banks. You can check with the bank to know the exact values.
The Borrower can lose the Property in case of Regular Defaults
You will have to be very careful while repaying this loan as the bank is liable to take over your property completely in case you won’t be able to pay off the EMIs. You should take this loan only if you have absolute trust in your income source and your repayment ability.
Otherwise, this whole thing could end up very badly, and one can also become homeless if they have mortgaged their only property to take the loan.