Home Loan

Top Myths About Loans Against Property Busted


There’s no denying that loans can be incredibly useful tools, especially when you need money fast and don’t have time to save up for it. However, if you’re considering applying for a loan against your property, you’ll likely encounter some common myths about the process before you even start looking into it. In this blog, we will explore some of the most common loan against property myths to help you identify whether they’re accurate in your specific situation. Let’s get started!

What is a Loan Against Property?

  • It is essentially a secured loan with the property as security. Low rates and flexible repayment terms characterize mortgage loans. To qualify, you must pledge your property with a bank or NBFC, receive a large amount of funds, and pay the monthly EMIs.
  • Unlike a home or an education loan, a person may use a loan against property for various purposes, including medical bills, weddings, higher education, and business expansion.

Myth #1: Property Cannot Be Used Once it is Pledged

A common myth about pledging property is that it can’t be used or sold once it’s been pledged. It isn’t the case, as you may continue using the property without worrying about defaulting on the loan. The only caveat is that you’ll need to keep up with the payments outlined in your loan agreement.

Myth #2 Loan Will Be Equal to the Total Property Value

  • The loan to value (LTV) is never 100%. Depending on the estimated cost of the property you pledge as collateral, the lender will determine what percentage of the loan should be given. Many banks and lending institutions offer a home mortgage loan up to 70% to 80% of the property’s market value.
  • Along with this, the age of the property, the property’s location, the building’s infrastructure, etc., are all considered. They also influence the LTV.

Myth #3 Loan Against Property Cannot Be Used for Personal Expenses

One of the most common misconceptions about loans against property is that they cannot be used for personal expenses. It is untrue, as you may use it for anything you would use a loan for. As long as you pay it back, you will have no problem receiving it from your lender.

Myth #4 Prepayment of Loan Against Property is Expensive

  • One of the most apparent misconceptions about a loan against property is that prepaying will be costly. The fact is, prepaying does not have to cost you anything. Some lenders charge a penalty for early payment, but some do not. Some, for example, waive penalties on specific terms (for example, no penalty if within two years).
  • All in all, prepaying has far more benefits than negatives. So it would seem wise to talk with your lender before making assumptions about what might happen if you pay your mortgage early!

Myth #5 It Is Necessary to Be in the High-Income Category to Avail Of LAP

  • If you would like to go in for a loan against property and belong to the middle class, then there is good news: the rules differ for salaried people and those who are self-employed. Various lenders have different thresholds for what constitutes an acceptable salary for either.
  • Maintaining low liabilities and not defaulting on all your current EMIs will help you gain the lender’s confidence, even if your net income isn’t high. The income group you belong to should not be a hassle until you can convince the lender about your ability to pay the loan back.

Myth#6 LAP Has High-Interest Rates

  • Another major misconception is that interest rates are higher for a loan against property. When you qualify for a loan by pledging your property, your credit score, income, and ability to repay it all play a role. Your EMI payment history and credit card payment history will be the only proof that can be considered.
  • If your credit score is 750 or higher, the lender can trust you and offer you a LAP at a lower interest rate. In contrast, if your credit score is low, you can’t qualify for LAP at a lower rate of interest. You are not even in a position to negotiate.

Myth#7 LAP is Not a Safe Option

One common misconception is that a loan secured by real estate is not a secure option. Many people think that LAP can worsen your financial situation. The reality, however, is that LAP is one of the safest ways to borrow money because you get to keep your collateral. To avoid complications, you should only focus on paying the instalments on time.

Summing up

It’s no surprise that LAP is quite popular. However, knowing the myths and realities about this type of financing is essential. The most common myth about a loan against property is that you can’t get a mortgage if there is a home equity line of credit. It simply isn’t true. For a more detailed analysis of the topic, refer to Common Myths About Loan Against Property – Piramal Finance.