Essentials of loan against property and should you go for it

Among a host of loan options provided by banks, a relatively popular product is the Loan against property or mortgage. The product clicks with borrowers because it generally allows one to borrow a relatively large sum of money for any need. It generally has easy documentation, speedy approvals and flexible repayment options.

According to the Transfer of Property Act, 1882, a mortgage, which is essentially availing a loan against property is "the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, and existing or future debt or the performance of an engagement which may give rise to a pecuniary liability.

This means one can apply for a loan from a bank by extending the property as a collateral or security. However, as the definition states mortgage only involves "transfer of interest" and the ownership of the property remains with the borrower. Ownership transfers to the bank only in the event of default on the loan.

Loan against property or a mortgage is popular because it has some perceptible benefits. Higher loan amounts are generally available for longer tenure when compared to conventional loans, and at a discounted interest rate. Most banks accept both residential and commercial properties for mortgage.

Its key benefits are:

Good when availing larger amounts

Interest rates are lower

Tenure is longer, which means lower EMI

Good tool for debt consolidation.

Funds can be used for business as well as personal needs.

To fulfill the eligibility criteria banks generally demand proof of residence, proof of identity, latest Bank Statement where you can show a salary / income for the past 6 months.

Loan eligibility as usual depends on the borrower's credit rating along with factors like income, age, qualification, number of dependents, spouse's income (if any), assets, liabilities, and continuity of occupation. Once the loan is approved is it either disbursed in full or in installments as instructed by the borrower? The borrower can often choose between fixed and floating rate of interest and generally there is an option for part and prepayment of the loan.

Who should opt for it?

Mortgage or loan against property is particularly popular when it comes to needing money for your business. While there is no restriction on using it for personal needs, however, if the amount is small, a personal loan can make much more sense.

While people use loan against property for education and even to buy/build a second property, most mortgage loans are taken for business purposes. This is especially helpful if the business ..

[Source: http://economictimes.indiatimes.com/small-biz/money/essentials-of-loan-against-property-and-should-you-go-for-it/articleshow/48523638.cms]