Loan Against Property Meaning and Commonly Used Loan Terminologies
Loan Against Property Meaning
Loan Against Property (LAP) also known as mortgage property loan is a secured loan where borrowers use their residential, commercial, or industrial property as collateral. Understanding the Loan Against Property meaning involves recognising it as a financial instrument that allows individuals and businesses access to substantial funds by leveraging the value of their property. The amount of loan sanctioned is typically a percentage of the property's market value, also known as Loan-to-Value and ranges from 40% to 80%, depending on the lender's policies and the property type.
Knowing the Loan Against Property meaning also helps in appreciating its flexibility. One of the primary advantages of a Loan Against Property is its lower interest rate compared to unsecured loans, such as business loans. This makes LAP an attractive option for borrowers seeking large amounts for various purposes, including business expansion, debt consolidation, education expenses, medical emergencies, or personal events.
Repayment tenures for LAP are generally flexible, often extending up to 15-20 years, which helps in reducing the monthly EMI burden. Additionally, the loan processing is usually faster than other types of loans, given the collateral involved. This aspect of the Loan Against Property meaning highlights its convenience and efficiency.
To qualify for a LAP, borrowers need to have clear ownership of the property and meet the lender's eligibility criteria, which often include income stability, credit score, and property valuation. The Loan Against Property meaning thus encompasses a viable financial solution by unlocking the potential of one's real estate assets while offering favourable terms for repayment.
Also Read: What is Loan Against Property? Features, Eligibility, Documents, and more
To understand the Loan Against Property meaning and terminologies better. This blog aims to cover and help understand the Loan Against Property meaning and highlight commonly used loan terminologies.
Top Terms to Remember in Loan Against Property
- Rate of Interest: ROI refers to ‘Rate of Interest’. The Loan Against Property interest rate starts from 8% p.a. Since it is a secured loan, Loan Against Property offers a low interest rate compared to other unsecured loans. That said, the rate of interest is subject to respective lender discretion and other factors such as your credit score. Thus, we recommend you check the official website of your preferred lender.
- Mortgage: A mortgage loan is a secured loan that allows a borrower to avail funds by mortgaging an asset such as residential or commercial property. However, the lender has the right under SARFAESI ACT, 2022 over the property if the borrower fails to repay the EMI. Usually, in a secured loan, a borrower is offered funds based on the property value, also known as Loan-to-Value along with other factors.
Did you Know? Borrowers can check the EMI payable using an EMI Calculator.
- Loan-to-Value: Loan to Value Ratio or LTV is the percentage of the property value that a financial institution lends to a borrower. Based on the property's valuation report, this Loan-to-Value ratio is calculated by dividing the amount you are eligible to borrow by the property's appraised value. Usually, the Loan-to-Value ratio ranges between 40% and 75%, but lenders such as Godrej Capital offer a Loan-to-Value of up to 90% depending on the cost of property and the profile of the customer.
- EMI: Equated Monthly Instalment, or EMI as it is commonly known, is a set payment that a borrower makes to the lender each month at a particular pre-decided date when lending the loan. These payments are applied to the principal and interest rate, making it easy to repay the borrowed money over a period of time. Using an EMI Calculator can help understand the payable amount and plan finances better.
Also Read: Loan Against Property - EMI Calculator, Features & Benefits
- FOIR: FOIR refers to ‘Fixed Obligations to Income Ratio’. Banks and other financial institutions use FOIR statistics to determine a borrower’s Loan Against Property eligibility. Usually, the fixed monthly expenses (barring statutory deductions such as professional tax, provident fund, and investment deductions) are considered to calculate FOIR.
- Collateral/Security: Collateral is an asset that is hypothecated when taking any Loan. In terms of Loan Against Property, the asset can be a residential property or a commercial property.
- Property Title: The property title is the legal document that identifies the owner of a property. It officially recognizes who the property belongs to, based on the information in the related documents.
- Loan Tenure: This refers to the time a borrower takes to repay the entire loan amount in the form of EMIs.
Also Read: Loan Tenure: All You Need to Know
- Balance Transfer: Balance transfer refers to the borrower transferring the total outstanding loan amount from one lender to the other for a suitable rate of interest or other factors.
- Credit Appraisal: A credit assessment refers to a thorough evaluation to determine the applicant’s capacity for repayment. In this assessment, the lender assesses an applicant’s income, occupation status, credit history, and other parameters.
- Credit Score: A credit score forecasts your capacity to repay a loan on time. It is basically determined by the information on your credit report. Your credit score depends on the number of loans you have, repayment, unpaid debt, bill-paying history, etc.
Also Read: How Does Your Credit Score Impact Interest Rates on Loans?
- Offer Letter/Sanction Letter: In the context of a loan, an offer letter refers to a lender sanctioning a loan to the borrower with a letter that contains loan terms and conditions. This may also be referred to as a Sanction Letter.
- Margins: Margin is the difference in loan amount and total property cost.
- Disbursement: Disbursement refers to the agreed loan amount being disbursed from the lender’s account to the borrower’s account.
Also Read: Why Instant Loan Sanction and Disbursal is Important?
- ESCROW Account: ESCROW accounts refer to the account in which the funds are held by a third party on behalf of other parties (i.e., lender and borrower) involved in a financing transaction. Funds, money, securities, etc. can be held in an ESCROW account.
Also Read: Escrow Account: Unlocking the Secrets of Secured Transactions
- Post-Dated Cheque: Post-dated cheque refers to writing a cheque for a future date. A financial institution may cash a post-dated cheque in case of default in repayment on the due date of the EMI.
- Amortization Schedule: An amortization schedule is a detailed table that shows the periodic loan payment. The schedule shows the monthly principal and interest payments that a borrower must make as EMI till the end of the loan term. A borrower can get the amortization table using the Loan Against Property interest rate calculator.
- Pre-Approved Loan: A pre-approved loan is not different from a regular loan. In this case, the lender offers the loan to the borrower who has previously availed of a loan from the lender and has maintained a solid repayment record. However, as a precautionary measure, the lender thoroughly evaluates the customer’s creditworthiness before making the pre-approved loan offer.
- Resale Property: When an individual purchases a property and then puts it on sale, the property becomes a resale property.
- Loan Insurance: Insurance is a voluntary risk mitigation device that helps a borrower in various ways, such as securing the asset and helping in paying off the loan liability in an unlikely event.
Also Read: Loan Protection Insurance: Your Safety Net for Life's Unexpected Turns
- Processing Fees: A processing fee is a one-time non-refundable fee a borrower pays the financial institution when a loan is availed. The lender charges this fee to cover the cost of processing the loan.
- Rescheduling Charges: Rescheduling charges are levied when a borrower requests revision in the original Loan Against Property terms and conditions. Usually, under the rescheduling arrangements, the loan’s repayment tenure is revised.
- CERSAI Charges: CERSAI refers to ‘Central Registry of Securitization Asset Reconstruction and Security Interest of India. This is a government-mandated fee that is levied to protect the interests of financial institutions.
- Legal Charges: Legal charges are those charges that a borrower bears when the lender hires legal experts to understand the valuation of the subject property, validation of documents, etc.
With all of these commonly used terminologies and Loan Against Property meaning outlined, you’d be able to better understand your loan journey and documents. We recommend referring to this article whenever necessary and for due diligence before you apply for Loan Against Property. And if you are interested in knowing more about Loan Against Property, you can visit our Knowledge Centre here to read more about the Loan Against Property meaning and related information.
After all, small steps towards financial literacy go a long way!
Godrej Capital provides Loan Against Property with higher loan amounts for your needs. You can secure a Loan Against Property by mortgaging property - residential, business, or commercial. Read more to understand the low interest rates, easy online loan application, and minimal requirements for a hassle-free borrowing experience.
Godrej Capital also offers flexible loan facilities such as Flexi Funds, an Overdraft-like facility, offering borrowers the flexibility to withdraw and repay funds based on their needs and convenience from a certain sanctioned limit. To start the loan application process, apply for a Loan Against Property with Godrej Capital here
Also Read: Design your EMI: The Flexibility You Need for Loan Repayments
Related FAQs
- What is the meaning of Loan Against Property loan?
A Loan Against Property (LAP) is a secured loan where you use your property as collateral. This property can be land, a house, or any commercial space you own. The lender keeps the property as collateral until you repay the full loan amount.
- What is another word for loan against property?
Another term for Loan Against Property is "mortgage loan."
- How to check eligibility for Loan Against Property?
To check eligibility for a Loan Against Property (LAP), ensure you have clear property ownership, a stable income, a good credit score, and meet the lender's age and employment criteria. Use online eligibility calculators for specific details.
- Is it safe to take Loan Against Property?
Yes, taking a Loan Against Property is generally safe as long as you have a clear repayment plan. However, ensure timely repayments to avoid the risk of losing your pledged property.
- What is the difference between Home Loan and Loan Against Property?
The main difference between a Home Loan and a Loan Against Property (LAP) is their purpose and collateral use. A Home Loan is specifically for purchasing or constructing a house, with the property being bought serving as collateral. In contrast, a LAP allows you to borrow against an already owned property (residential, commercial, or industrial) for various purposes, such as business expansion, education, or personal needs.
Disclaimer: The contents of this article are for information purposes only & not a financial advisory. For more details, please refer to the product or service document and/ or connect with our customer representative prior to making any financial decision. The information is subject to update, completion, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
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