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Mudra Power : Loan Against Property

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You may have a lot on your mind when it comes to sending your children for education abroad or maybe finance your business or even finance your child's wedding. The first thing that would come into the mind of most of us is,

'Where would I get the money from?'
There are many ways you could arrange for money, and one of those ways is taking a loan. You could take a personal loan for the amount required, or you could take a loan against your property.

What is a loan against property?
A loan against property (LAP) is exactly what the name implies -- a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property's market value, usually around 40 per cent to 75 per cent.
Loan against property belongs to the secured loan category where the borrower gives a guarantee by using his property as security.

What purposes can I take a loan against property for?
Loan against Property can be taken for following purposes:
Expanding your business
 

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Getting your son/daughter married
Sending your son/daughter for higher studies abroad
Funding your dream vacation
Funding medical treatments
Any other thing which is legal
 
What kind of properties can I mortgage for a loan?
You can normally take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land. We also provide loans against industrial and commercial properties. Rate of interest and loan to value ratio depends on the type of property mortgaged.

What are the eligibility criteria to get a loan against property?
This criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:
Your income, savings, debt obligations
Cost/value of the property mortgaged
Your repayment track record for other loans, credit cards, etc.
What are the normal interest rates and tenure for repayment offered for a loan against property?
Interest rates on loan against property range from 12 per cent to 16 per cent, and the loan tenure can be up to 15 years.

How is a loan against property different from a personal loan?
Loan Against Property
Personal Loan
The individual takes the loan by mortgaging the house property
An individual can take a personal loan for personal use without any security or guarantor
One of the cheapest retail loans after home loans; usually about 12%-16%
Higher interest rates compared to LAP; usually issued at interest rates in the range of 16%-21%
Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turn out cheaper
Since rate of interest is high, Equated Monthly Installments (EMI) for personal loans are high
Maximum loan eligibility is determined primarily by the value of the property and income
Maximum loan eligibility is determined primarily by an individual's income
Maximum loan tenure for LAP is up to 15 years (180 months)
Maximum loan tenure for personal loan is up to 5 years (60 months)
Secured loan
Unsecured loan

What documents are required for applying for a loan against property?
Most banks and financial institutions typically require the following documents. However, this list may vary from bank to bank.

Salaried Customers

Self Employed Professionals

Self Employed Businessman

Application form with photograph

Application form with photograph

Application form with photograph

Identity and Residence Proof

Identity and Residence Proof

Identity and Residence Proof

Latest Salary-slips

Education Qualifications Certificate and Proof of business existence

Education Qualifications Certificate and Proof of business existence

Form 16

Last 3 years Income Tax returns (self and business)
Last 3 years Profit /Loss and Balance Sheet

Business profile
Last 3 years Profit /Loss and Balance Sheet
Last 3 years Income Tax returns (self and business)

Last 6 months bank statements

Last 6 months bank statements

Last 6 months bank statements (self and business)

Processing fee cheque

Processing fee cheque

Processing fee cheque

 

A loan against property is one of the best ways to raise money. The only disadvantage of such a loan is that if the borrower is not able to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property. Base your decision on your repaying capabilities.

Can I top up my loan?
Yes loan amount can be topped up once the property value increases or there is increment in your annual income/business turnover. Usually banks do this after the expiry of 6 months from the initial disbursal of loan.

Can OD limit be taken in Loan against property?
Yes it can be done through banks wherein a drop line overdraft facility is offered. In this facility a certain predefined amount based on the tenure of the loan is reduced from the initial amount disbursed. OD gets zeroised at the end of the contracted tenure of loan.

The disadvantage of an overdraft facility is that the interest rate charged may be higher, in some cases up to 0.5 per cent and also annual processing fees will be charged. Additionally, only banks can offer the overdraft facility as other financial institutions do not offer savings/current accounts.

In case of a lump sum loan, processing fees are charged only once when the loan is taken and also the individual can approach either a bank or financial institution for the loan.

 

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