Skip to content
Home » Planning a Loan Against Property? Check out These Terminologies Before You Apply

Planning a Loan Against Property? Check out These Terminologies Before You Apply

Do you remember your first days of learning when the classroom teacher’s words sounded confusing? Just like that, learning the financial language involved in any Loan process can seem difficult, especially when you are a new applicant.

However, negotiating the best LAP financing alternatives in the current market may only be transparent with a comprehensive understanding of the loan terminology. To help you understand such complicated terminologies, we’ve produced a list of the essential LAP terms you must know before applying for a loan.

  • Principal Loan Amount

The borrower receives the primary sum of the loan after the financial institution approves the loan request. Yet, while repaying the lending institution, the borrower must pay both the principal amount granted at their point of authorization. Additionally, the interest imposed by the lending institution you have to pay off. The amount borrowed alone cannot be considered sufficient for paying back the lender. Because the value of money changes over time owing to additional variables. Such as inflation, bank regulations, and economic circumstances are the most common examples.

  • Mortgage

The phrase “mortgage” concerning an LAP implies a particular asset, which might be land, property, or a building. These are used as security to borrow funds from a lending company. Whenever asking for an LAP, ensure that the land or building being mortgaged has transparent ownership proof or title.

  • Alternate Asset

According to the loan against property, alternative assets are any kind of asset apart from a residential or commercial building. These can be used as security to obtain LAP funding. Alternative assets include lodgings, healthcare facilities, farmhouses, educational institutions, etc. The requirements and terms of an LAP on alternative assets vary depending on the financial institution that lends the money.

  • Loan-to-Value Ratio

The loan-to-value ratio defines the amount of funding value for which you are qualified for financing. It evaluates how much you may get based on the present-day market value of your property, which might be land or buildings. LAP is typically accessible with LTV ratios that range from 40% to 75%.

  • Property Title

A property title indicates the title or ownership of the asset’s legally recognised owner. When placing a mortgage on an investment with more than two registered owners, you have to get an NOC from every single one of the owners.

  • EMI stands for Equated Monthly Installments

The concept of EMI stands for equated monthly instalments. It illustrates your monthly commitment to repaying a loan taken against a property. The EMI combines interest rates and a certain percentage of the loan’s original value. A LAP calculator will help you determine your EMI before applying.

  • Loan Tenure

The phrase indicates the time for which the financial institution lends the LAP sum. This refers to the time throughout which you have to repay both the borrowed principal and the interest portion. LAP is usually offered for up to 15 years. Generally, the longer the LAP duration, the smaller your monthly responsibilities, and vice versa.

  • LAP Rate of Interest

The LAP rate of interest, often known as the interest value, is the expense of taking out cash through LAP. Once you get LAP money into your accounts, interest starts to collect. LAP interest rates are classified into two categories: fixed rates and variable rates.

  • Fixed Interest Rates

The fixed rate of interest on an LAP remains constant in response to external influences, such as market circumstances, price inflation, and other variables. The rate remains consistent during the loan period. Thus, recipients get a chance to estimate upcoming payments precisely.

  • Base Rate

The RBI sets a certain minimum rate, commonly referred to as the base rate. Financial organizations aren’t allowed to lend to their customers below this rate.

  • Balance Transfer

Balance transfer implies how the borrowing party transfers the remaining balance of the loan from one specific lender to a different one. Borrowers typically use balance transfers to take advantage of reduced interest rates provided by other financial organizations.

  • Credit Appraisal

Credit appraisal is an approach by which banks and other financial institutions assess a prospective borrower’s repaying capability. During the credit evaluation process, the financial institution considers your earnings, employment status, history of credit, and other factors.

  • Offer or Sanction Letter

An offer letter is sometimes referred to as a sanction letter. The letter is a formal acknowledgment that your loan request has been approved. After reviewing your information and papers, the lender forwards you an offer letter via the email address you registered with. The letter specifies the highest possible loan sum, rate of interest, and loan period, along with additional LAP conditions or terms.

  • Loan Disbursement

This is the final stage in your whole LAP application journey. Disbursement is the transfer of the funding from the lending institution to the applicant’s account. According to the LAP criteria and conditions, the disbursement may either be entirely or partially.

  • Escrow Accounts

Escrow accounts are financial instruments through which a third party holds the LAP funding on behalf of both parties involved in the agreement to finance the transaction. The individual who is getting the LAP is not permitted to withdraw money from an escrow account until the mutually agreed-upon conditions are fulfilled.

  • Prepayment and Foreclosure

The phrase “prepayment” implies an applicant’s plan to pay EMIs earlier than the specified time frame. Prepayment may be partial, meaning that the applicant pays the monthly instalment payment for several months in advance or entirely. Additionally referred to as foreclosure, in which the applicant returns the whole outstanding balance at once.

  • Amortization Schedule

An amortization schedule is a structured figure that shows your regular repayments for loans. The SCHEDULE shows each month’s repayment amount for interest and principal that the applicant is responsible for in a set of EMIs until the repayment period of the loan is finished.

  • Annual Percentage Rate

APR stands for annual percentage rate. It indicates the actual expense of borrowing because it includes charges such as interest, processing, legal, and stamping costs.

  • Credit Score

A credit score shows the prospective borrower’s credibility. Credit bureaus determine your credit score based on your number of borrowings, your EMI payment track record, the proportion of your debt to your income, and other criteria. Your credit score helps the lender determine your capability to pay back the LAP.

  • Insurance

Insurance in the LAP scenario implies insurance of the asset that the prospective borrower wishes to mortgage with the financial institution.

  • Processing Charge

The processing charge is a one-time expense, not a returnable fee paid to the lender if you decide to take out an LAP. The financial institution is going to charge you this fee to pay for the costs related to processing the loan application. The processing fee must be paid individually because it is not included in the LAP EMI.

  • CERSAI Charges

The CERSAI fee is a government-mandated fee that protects financial institutions’ interests. Its primary purpose is to stop fraudulent funding transactions and discourage borrowers from using the same asset to secure several loans from different financial institutions.

The CERSAI database allows lenders to determine if a property has previously been utilized as security before offering loans to customers. CERSAI helps reduce fraudulent activities, including multiple funding and benami transactions. It also improves the openness and efficacy of the loan transaction system, allowing financial institutions to monitor and handle their assets more accurately.

Why Choose Loan Against Property Among Other Options?

Securing a loan against property can be a wise financial decision, whether you want to develop a startup, support the educational needs of your child, or achieve other critical economic objectives. Still, as with any monetary effort, knowledge of the terminologies related to LAP is critical to making sound judgements.

Bottom Line

Understanding these fundamental yet important LAP terminologies is essential. While evaluating loans’ advantages, favorable conditions, and eligibility requirements, may be very helpful.

A LAP may sometimes need clarification. Therefore, learning the common language is an initial step towards fully understanding the loan’s conditions. Once you become aware you can start the application procedure.

A “Loan against property” is a financial option that allows you to borrow funds by offering your property as security. This form of loan is flexible. LAP allows you to use the money you’ve borrowed for either personal or professional reasons without limitation. Financial institutions may grasp the mortgaged asset in the event of a default.

Leave a Reply

Your email address will not be published. Required fields are marked *