Fixed or floating- What

India (SANEPR.com) July 11, 2008 -- Loan against property connotes to that loan given or disbursed against the mortgage of an immovable property. The loan amount disbursed is a certain percentage of market value of the property of the borrower. Generally, the sanctioned loan amount ranges from 40% to 70% of the market value and has an upper threshold limit of 2 to 3 Lakhs. The payable interest rate on these loans much cheaper than the personal loan or unsecured loan plans. The lower interest rate is because of the fact that the lender has a security in the form of the housing mortgage compared to a personal loan that is given without any security.

The repayment tenure for loan against property is much larger than personal loan. Generally, the maximum repayment tenure is 10 years. The loan amount can be used for any purpose and you are not required to disclose the motive of the loan to the lending authority at the time of loan application. The criteria for loan approval are same as that of a home loan. Part prepayment as well as full prepayment options are available. These loans are available against both residential and commercial property.

Some financial institutions offer floating rate for loan against home. The loan against property rates can be fixed or floating. When the loan against property rates are fixed, the payable rate of interest remains the same over the repayment tenure. If there is any reduction in the interest rate in the financial market, the borrower is not benefited. However, if the interest rate rises, the borrower does not have to pay anything extra.

When the loan against property rates are floating, the borrower enjoys flexibility. If the interest rate becomes lower, the borrower pays a lower interest. However, when the interest rate rises, the borrower can refinance the loan and go for a lower interest one by repaying the older one. The borrower has also the option to convert the fixed loan against property rates to a floating one. For this purpose the borrower has to pay an extra fee. The fee varies from banks to banks.

Loan against home is offered to individuals between the age group of 18–60 years and who are either salaried employees, professionals or self-employed ones. Some banks also offer these loans to individuals who don’t pay income tax, as long as they provide proof of income to the the lenders. The State Bank of India offers these loans to individuals who are engaged in agricultural and allied activities. The prime concern for the bank is that the borrower is a home owner. As the investment of the lender is insured against the home of the borrower, he pays little heed to the occupation of the borrower.

The documentation process of loan against home is little bit clumsy compared to the unsecured ones. In addition to the standard documents banks also generally ask for the allotment letter of the land. Agreement for sale/sale deed for the property is required for the loan approval. Original title deeds of the property are offered by the borrower to avail the loan. Paid receipt of latest maintenance, water tax, municipal tax and any such taxes need to be attached with the loan application form.

The prospective borrowers are advised to follow certain steps before searching for loan against property rates. He/she should compare the loan quotes of different lenders and search for one that addresses his needs perfectly. When the borrower is going for the personal discussion round in the bank, it is advisable to carry all the original documents regarding the information provided in the loan application form to avoid any sort of ambiguity. The borrowers are advised to avoid the submission of any fake documents or lies about financial details.