Mortgage loans have become quite popular in India, given the fact that they offer higher loan amounts, lower interest rates, and a flexible tenure to go with. These are secured loans wherein your commercial or residential property is pledged as collateral with the lending institution for availing the loan. If you own a property and are looking for some surplus funding for expanding your business or taking care of your children’s higher education, instead of taking a personal loan, you can always put your property at work for you. In LAP, you will have to put your property as collateral. As lucrative as its sounds, there is a negative to it, which could harm you if property rates go down.
To understand this one particular flaw of loan against property, keep reading this post.
What is the impact of property rates going down?
Can lenders ask for more collateral if realty prices fall?
Over the last few years, we have seen that the property rates have gone drastically below what it once used to be. The falling realty prices are a major threat to the LAP segment. Lenders have always struggled to keep up with the loan disbursed whenever there was a fluctuation in the real estate market. According to the experts, since property prices are always bound to fluctuate, there is a certain possibility that the lenders may ask for additional collateral in the wake of the meltdown in real estate prices. However, it is very unlikely to happen anytime soon in India.
What are the things to keep in mind when availing loan against property?
If you are planning on taking LAP against your existing commercial or residential property, here is what you should be aware of.
1 Loan against property eligibility
It is not just your property, which is taken into account by the lending institution to determine your loan approval. Lenders also evaluate aspects like income, repayment history, and credit score before sanctioning the loan. On the other hand, the lending institution may send a certified valuation expert to evaluate the real value of your property. You will have to submit the property papers to the lender, which will be returned to you after successfully repaying the loan amount. Please note that you will only get 50%-75% of the total value of the property as the loan amount.
2 Tax benefits
If you are taking a loan against property for buying a new house or constructing a new house, then under Section 24 of the Income Tax Act, you are eligible for a tax benefit of up to ₹2 lakhs. Moreover, under Section 31 of the Income Tax Act, aspects like processing fees, repayment fees, and other additional fees are considered as business expenses and are paid off.
If the property you are putting under collateral is co-owned by another member in your family or business, then that person automatically qualifies as the co-applicant. This can take some pressure off you as both the applicants can equally share the monthly payments.
Always compare your options before availing the LAP.