Types of Mortgage Loan, Loan Against Property Types

Do you have a commercial or residential property which you can offer as collateral? Then you can avail of a loan against it at attractive rates of interest, in case you are looking for funding for meeting your unforeseen and urgent needs.

Banks offer Mortgage Loan/ Loan against Property (LAP) which is an easy, convenient and hassle-free Loan given against mortgaging your property for a loan amount ranging from Rs. 3 Lakhs up to Rs. 5 Crores at an attractive rate of interest being a secured loan. The loan is given as a certain percentage of the value of the property for example 40% to 70%.

This loan can be availed for several purposes including expansion of business, child's higher education, wedding, dream vacations abroad, medical emergency, etc. There is no need to disclose the cause of availing this loan.

The main advantage of availing LAP is that the tenure and the loan amount approved is comparatively higher and interest rates are lower when compared to other types of loans. Further, being a secure one, you have got more chances to get the loan approval in a hassle free manner.

When talking about the Types of Mortgage Loan/ Loan against Property (LAP), there are basically following 3 types of Loan against Property (LAP):

(1) Regular Mortgage Loan/ Loan against Property

This is the most common and demanding type of Loan against Property. There are many banks and NBFCs which offer this type of loan. Majority of lenders sanction loan against residential property and few of them also offer loan against commercial property or loan against industrial property. In this type of loan, you have to pledge residential or commercial property in your name in order to avail the loan.

The residential property includes independent house, flat, bungalow, row-house, duplex, etc. There are 3 types of loan against residential property:

  1. Loan against Self Occupied Residential Property - This loan can be given up to 65% of market value
  2. Loan against Rented Residential Property - This loan can be given up to 50% of market value
  3. Loan against Vacant Residential Property - This loan can be given up to 50% of market value

Banks offer loan based on market value or registered value of the property, whichever is lower.

(2) Mortgage Loan/ Loan against Property Overdraft

It is offered to facilitate your working capital needs where you can enjoy a credit limit that you can use anytime. It is generally provided to meet the fluctuating need of funds by the borrowers. In this type of LAP, you will be required to pay the interest only on utilized limit for utilized time. It is generally has a tenure of 12 months and you can renew the overdraft limit every 12 months as per your repayment schedule.

In the loan against property overdraft, you get the option to deposit any extra money in your LAP account. This reduces the interest liability thereby reduces the tenure of paying your LAP EMIs. This type of LAP is more suitable for self-employed or business houses who have fluctuating incomes.

(3) Mortgage Loan/ Loan against Property Top-up

Like Top-up Home Loan, Loan against Property Top-up is also an additional loan which you get, over and above the LAP. You get loan against property top up either from your existing bank or if you balance transfer the LAP, the new bank also offers you LAP top-up facility. Banks takes LTV into calculation while approving for the LAP Top-up. They ensure that your existing LAP outstanding plus LAP Top-up must not exceed an LTV of say 70% of the property market value. Loan amount under Loan against Property Top-up depends on:

  • Your income
  • Property's market value
  • LAP outstanding
  • Your repayment history
  • Other terms and conditions of the lending bank

As already detailed above regarding 3 different types of Loan against Property (LAP), which can be availed for different needs. You can choose any of these types of Loan against Property (LAP) on the basis of your requirement.

Major criteria to consider while selecting the types of Loan against Property (LAP) could be loan amount, tenure and cause of utilization of funds.

Disadvantages of Mortgage Loan/ Loan against Property (LAP)

  1. Property is usually considered very precious hence mortgaging the same seems difficult for some borrowers.
  2. It is offered at comparatively higher Interest Rate. Other types of loan, such as Home Loan, etc. can be availed at lesser interest rate. The difference in interest result into higher interest outgo for the borrower.
  3. When you want to take loan against property then the valuation of property is got done by the lender through their valuers. Sometimes it has been seen that lender's valuers do lesser valuation of the property than its current value. In such a case, the borrower get less loan amount.
  4. Only 50% to 60% of the property value is offered by the lender while in case of home loan upto 90% to 95% of property value is extended by the borrower.
  5. After you take Loan Against Property (LAP) by mortgaging your property, the lender has the right to sell your property in case you are not able to repay the loan properly and on time.
  6. Unlike Home Loan, no tax benefit is allowed under Loan Against Property (LAP).
  7. It takes longer time to obtain loan approval in case of Loan Against Property (LAP).