A loan against property is a process of obtaining the loans by an individual by mortgaging the property and submitting the documents to the lender, and availing liquid cash in return for that. The borrower should also have the property documents with clear titles and no partner or co-owner involvement in the property. The borrower should also have an average score of CIBIL ratings, such that the loan can be approved. The loan against property can be taken or should be considered only when the individual needs liquid cash to satisfy their needs like buying a new property, renovation of the property, expansion of the business, travel purpose, marriage purpose. Etc.
The funds borrowed under loan against the property are not liable for the income tax deductions. Only in case of the amount invested in purchasing the property can the borrower avail tax benefit on the interest paid to the lender. The borrower can avail immediate liquid cash in hand from the lender without hesitation as the property is already being mortgaged by the borrower to the lender. Hence, the lender has a surety that they can recover the funds through the seal of assets of the mortgaged property and thus will not be left with bad debts. The borrower can avail of a loan of up to 60-70% of the total property amount as liquid cash. The borrower can avail the even lower amount of money as against that the liability of repayment also gets reduced. The interest rates charged for the loan against property are in the range of 9-15% per annum. And the repayment value is calculated on a compounded annual basis. Thus the repayment value is high. Thus it is recommended that the borrower should lend the money according to the need only. The funds raised through a loan against property can be utilized for any purpose. The bank does not ask for proof of expenditure of the loans. Only the bank expects that the loans should be repaid on time.
Essential Terms & conditions of Loan Against Property agreement:
- Tenure & repayment:
The tenure of the loans can be maximum of 15 years from the date of the funds being borrowed. The repayment of the loans should be made before the due date failing which the borrower would be charged with a penalty from the bank. Also, some lenders may charge a pre-payment penalty, or else some lenders may even provide a rebate to the borrowers. About the pre-payment charges, the borrower should check with the loan agreement of the bank.
- Disbursement of the loans:
The disbursement of the loans would either be done installment-wise, or else a complete amount would be released. The payment would be made in the property owner’s name either by cheque or demand draft.
- Interest charges & loan amount:
The interest charges would be levied according to the mutual understanding between the bank and the borrower, and the same applies in the agreement. The interest would be calculated on a compounded annual basis. The borrower needs to repay the principal amount to the lender within the given span of tenure. Also, the loan amount would be mentioned in the agreement, which the lender is sanctioning after the approval of loans.
- Security deposit:
The lender is approving the loan against the property through the mortgage documents to the lender. The borrower should repay the loan amount along with the interest value failing which the bank has the right to seal the property. Also, in case of delayed payment penalty would be charged.
- Banks rights:
The bank has the right to forfeit the documents and assets in case of default of loans. Also, the lender may charge a penalty in case of the non-payment of the dues. The bank also has the right to check, inspect the property whenever needed. Also, the bank has the right to check the books of accounts whenever needed. Also, the bank has the right to get the information about the transfers of the borrower, promotion received, and increment received. Also, a job change should be notified to the bank. They are failing which bank can charge non-compliance charges to the borrower.
- Events of default:
The bank would provide the notice to the borrower in case of default, and notice would be served to the borrower in case of non-payment of dues. The bank has the right to take legal action against the default, and the bank has the right to recover the total amount along with interest. Also, the bank has the right to suspend the account for withdrawal from the bank. Take possession of the property and seal the assets and also sell the assets for recovery.
Thus, as there are many clauses in the loan agreement against property, some of the key major highlights are mentioned above. The clause agreement is a final draft which ones signed should be bound to be followed by the borrower. Also, the rights of the bank mentioned should be known by the borrower in case of delay or default of loans.