Ways2finance: Unlock the VALUE

With banks tightening lending norms, enquiries for loan against property are rising. The benefits too are many — longer repayment tenure, lower interest rates than personal loans & a high value of underlying asset, says Neha Dewan

GET MORE value out of your property. At a time when banks have tightened lending norms, certain low risk solutions can help to process a loan faster.
    So if you own a property and want to make the most of this asset, get a loan against it. Currently, loan against property is seeing a high demand. And the logic is simple. A longer repayment tenure, a lower rate of interest than personal loans and a high value of the underlying asset makes these loans rather attractive.
    Rajiv Sahni, partner, real estate, Ernst & Young, says while loan against property is a mature product in the west, In India it has started finding flavour only since the last 5-6 years. "The popularity of the product has picked up as it frees up liquidity for indulging in opportunities. Borrowers have been typically using such loans for personal or business uses. The challenge lies in clear title of the property and income eligibility of the borrower, as banks will still look for repayment ability of the borrower."
    The obvious advantage that comes through for a consumer is that the interest rate on such loans is in the range of 11-14% against over 18% for personal loans. "For certain individuals who find it difficult to avail or qualify for a personal loan, banks are more comfortable extending such mortgage-based loans as the underlying security value is high. These loans can operate as an overdraft facility for customers who do not want the hassle of fixed monthly repayment installments but would prefer to repay through surpluses like annual bonuses or business profits. Borrowers should, however, carefully study the loan agreement for prepayment or foreclosure charges and interest rate reset clauses," adds Sahni of E&Y.
    Banks admit to an increase in enquiries for such loans. Ashish Mehrotra, head, consumer assets, Citi India, says there has been a definite increase in the number of people wanting to raise money against their property for business or personal use. "Loan against property provides borrowers with the flexibility to pay back loan over a longer term as compared to other debts. In comparison to personal loans or credit cards borrowing against property can work out to be a cheaper source of debt for customers."
    HDFC Bank which also offers loans against property has features such as loans from Rs 2 lakh onwards, borrowing up to 50% of the market value of the property, option of choosing between an EMI-based loan or an overdraft and high tenure loans for ease of repayment.
    Developers too agree that the demand for these loans has gone up as it can help people buy property at reasonable prices in the current market conditions. Manoj Goyal, group company secretary, Raheja Developers says a consumer should keep certain key aspects in mind while taking such loans. "One must take these loans from a reputed financial institution and not from unorganised financial sectors. The rate of interest should not be very high and the repayment schedule should be based on the repaying capacity of the borrower."
    Agrees Rajeev Rai, V-P, corporate, Assotech. He says one needs to keep existing financial arrangements very handy when applying for a loan against property. "A thorough analysis of offers from various banks or financial institutions is necessary. A major benefit of these loans is the use of zero yielding property to unlock a huge sum of equity for immediate use. Their demand has gone up in the last six-seven months."
    There are a number of documents which you need to keep ready if you want to avail yourself of a loan against your property. HDFC Bank, for instance, requires a proof of residence, proof of identity, latest bank statement or passbook, latest three months salary slip and copies of all property documents from salaried individuals. In the case of a self-employed individual, they need a certified financial statement for the last two years in addition to the above mentioned documents.
    Mrunal Duggar, associate director, Homebay Residential, Jones Lang LaSalle Meghraj (JLLM), however, exercises a word of caution. "One should not assume that the funds obtained via a loan against property can be used arbitrarily. Banks will include a clause outlining the limitations, which would usually include speculative investment. Also, one should keep in mind that by pledging one's property against a loan, one is putting a valuable asset on the line. If repayment should become an issue, this can have serious consequences. Before deciding on a loan against property, other funding routes should be thoroughly explored."
    neha .dewan @timesgroup .com