09 MAY, 2020

Loan against property is considered as a secured mortgage loan because the applicant provides property as a security against the loan. There are various benefits of getting a loan against land or property due to the involvement of the security. You can get lower interest rates than any other type of unsecured loans like personal loans. Moreover, banks provide longer tenure and higher amount on the property mortgage loan.

You can use the loan amount obtained from loan against property for personal as well as professional purposes. Due to its secured nature, many experts consider loan against property a better option than a personal loan. In India, many people take the help of this option to get financial assistance. However, there are still some misconceptions going around the concept of loan against property.

Here are the three common misconceptions about the property mortgage loan:

You can’t use your property when you use it as collateral for a loan

While giving you a loan by keeping your property as a security or collateral, banks ask you to submit the original documents of the property. Banks hand over these documents to you as soon as you repay the entire loan amount. Meanwhile, you can use the property and lending organizations do not restrict you from doing so.

Lending institutions only accept the applications for a loan against residential properties

This is a straightaway myth. You can provide any type of property- residential, industrial or commercial, as a collateral for a loan. In fact, you can also avail a loan against land when you own a plot of open land.

Following are the properties that you use as collateral for the loan:

  • Industrial / Commercial properties: Shops, office spaces, commercial complexes, warehouses, etc.
  • Residential properties: Bungalow, apartment, row-houses, condo, residential building, etc.

Lending organizations consider the buying cost of the property to decide the total loan amount

The cost of any type of property generally increases with time. Banks or non-banking financial companies understand how the real estate market works. That is why lending institutions avail the amount based on the current value of the property instead of its buying value.

For example, Mrs Suman owns a 1BHK apartment worth Rs. 20 lakh in 2010. Today the value of apartment has increased and become Rs. 40 lakh. Now, Mrs Suman wants Rs. 30 lakh for her daughter’s wedding and so, she applies for a loan against her property. Though the buying cost of the property is lower the loan amount, the bank approved Mrs Suman’s application because the current value of the property is higher.

Mortgage loan against property is a fantastic way to get financial assistance for personal or business purpose. If you are also thinking of applying for one, you need to note that along with the value of the property, banks also check your credit score, the legality of the property and age of the property to approve the loan application.




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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.