The need to offer funds can arise at any time. You might have to pay for a medical emergency or need funds for undertaking that much-awaited vacation. There might be a wedding to plan or you might need funds to start a venture or small business of your own. that business of yours. Whatever the reason, loans become quite important whenever you need a lump sum amount of money to meet your personal financial expenses.
When it comes to loans, personal loans are quite the favorite option for many borrowers. They allow funds to meet multipurpose needs and are easily available. One such type of personal loan is a loan against property. Let’s understand the loan in details –
What is a loan against property?
A loan against property is a secured personal loan which is sanctioned against the mortgage of a property belonging to you. The loan is also called a mortgage loan.
Salient features of loan against property
A loan against property has the following salient features –
- It is a secured personal loan as it is secured against the mortgage of a property. As such, interest rates are low compared to unsecured personal loans
- Any type of property, residential, commercial or industrial, can be mortgaged to avail the loan
- Repayment tenure goes as high as 15 years
- The amount of loan depends on the value of the property which is mortgaged with the lender
Calculation of the loan amount
The amount of loan which is available under a loan against property depends on the value of the property that is being mortgaged. Lenders get the property evaluated independently. Thereafter, according to the lender’s evaluation of the property, a percentage of the property’s value is offered as a loan. This percentage is called the Loan to Value ratio or LTV ratio. For instance, if the LTV ratio is 60% and the value of the property as determined by the lender is INR 50 lakhs, borrowers would be able to avail a loan up to INR 30 lakhs.
Loan to Value ratio determination
The Loan to Value ratio depends on the type of property that is mortgaged with the lender. When you mortgage a commercial property, the Loan to Value ratio would be different compared to when you mortgage a residential or industrial property. The Loan to Value ratio varies across lenders. Usually, the most common Loan to Value ratios depends on the type of property are as follows –
- If you mortgage a residential or commercial property, the Loan to Value ratio would be in the range of 60% to 70%
- If you mortgage an industrial property, the Loan to Value ratio would be in the range of 50% to 55%
Moreover, the usage of the property also determines the Loan to Value ratio. Vacant or rented residential and commercial properties usually have lower Loan to Value ratios compared to self-occupied ones. The ratio can also be negotiated with the lender if you are seeking higher loan funds.
So, understand what a Loan to Value ratio means in a loan against the property so that you can estimate the loan which would be available against the property that you mortgaged with the lender.