Why we need information related to loan against property

Loan Against Property (LAP) has become a common phenomenon since last few decades, which is spreading rapidly among all sections of the society.  The need of LAP is undoubtedly becoming important in the present times, so every person who wants to get mortgage loan against property must be aware of its advantages and disadvantages.

First of all it is important to know what will be the rate of interest on our immovable property.  In general, LAP is dependent on variable rate which allows the interest rate to change after a certain period.  This process of changing interest rates in India depends on the prime lending rate which varies every month. This can be better understood from the following points:

Rate of Interest
There are 2 types of LAP interest rates --- 1) Variable and  2) Fixed. It has been observed that most of the borrowers opt for variable rate of interest. If fortunately there is a fall in the interest rate, this type of LAP becomes profitable but on the contrary, an increase in the interest rate affects our borrowing objective.

In a fixed rate mortgage loan, the interest rate does not change during the term of the loan.  However, now this too has started changing after a certain period.  In such a situation, there is no justification for taking a loan at the fixed rate now.  However, it depends on the borrower's own needs and his ability to repay the loan as to what rate of interest he should adopt for the repayment of his loan. Generally, the Banks grant fixed rate loans to long term projects.

Market Status
Also interest rates are usually rising at times. This proves to be a real problem for those who pay their installments with great difficulty at the prevailing interest rates.  A hike in rates can spell disaster, and a dangerous situation can arise if a large number of borrowers get caught in such a dire situation.  Also, the fear of incurring a prepayment penalty also keep the borrowers stuck in debt for a long time.

Credit History
The credit history of the borrowers plays an important role in getting the loan from the bank.

Many people face bad credit history which hinders them in taking new loans.  Basically credit history is the record of their past credit details.  This includes non-payment of their loan and outstanding loan amount.  Many people, who have defaulted on paying bills before, have a bad credit history.  Generally, lenders do not favor lending to borrowers with a bad credit history.  Also, lenders do not want to give mortgage loans to bankrupt people.  But there are few lenders who are ready to offer mortgage loans for people with bad credit history.  Such loans are known as sub-prime mortgages.  While taking a mortgage loan, it should be ensured that the interest rates are not too high otherwise it affects the credit position of the borrower and this is the last opportunity the borrower wants to get.  Therefore, it is of utmost importance that the borrower avails the loan at the lowest interest rates.

Legal aspects
The mortgage lender also needs to know whether the home is a duplex, condominium or single family housing. There is no dispute on mortgage of the house, all the documents of the house express the correct condition, the property should be free of encumbrance.  The property must be legally registered and marketable.

Documents required
It is necessary to have the following 2 important documents related to this ---

ITR Proof
To know the source of income of any borrower, it is necessary that the borrowers should know about his annual income and this is possible only if the borrower keeps on giving information about the amount earned by him on regular basis every year to the government of his country i.e. is he filing his return on a regular basis or not ? Moreover, this document of income tax return should be for the last 2-3 years.

On the basis of this ITR, it will be decided that what percentage of the loan can be given to the borrower against the value of the property being mortgaged by him, which he will be able to repay easily.  His take home salary should be such that even after paying his instalments, he takes home 40 per cent of his total income every month.  So that he and his family can survive with that amount.

Guarantor's address and Income Proof
Lenders also ask their borrowers to give assurance of a guarantor who can assure them of returning the principal amount of the loan in case of non-payment of the loan.  The guarantor should also have documents relating to his residence and source of income. So that in case of default in repayment of the loan, legal action can be taken against the guarantor and the borrower.

If a borrower applies for LAP (Loan against Property) keeping the above in mind and submits all his required documents then he will be able to get mortgage loan and repay his loan on time.
                                                     --- Dr Bibhash Chandra Jha