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14 April 2011

Meaning and Benefits of LAP

Home loans and discussions regarding them one often hears the word LAP. This term means loan against property. What does loan against property mean? It simply means that one can avail the facility of taking a loan against any self occupied property or rented property that is owned by the borrower.
This is also termed as mortgage loan and the borrower can get a certain percentage of money considering the total value of their property. The bank or financial loan lending institution would do appraisal of the property for coming up with the total market value of your property or house. Then accordingly you can get 40 to 60% amount of this value.  This is considered as a secured loan as the borrower provides a guarantee of repaying the loan by using his property as security. Let us now discuss the benefits of these types of loans:
1) This type of loan has low interest rate charged on the money offered by the lender. The interest rates offered for these loans are mostly 14 to 16%.  Since the borrower has provided security the lender is already assured of the repaying capacity of the lender and in case of default they can always fall back and recover the amount by selling the same.
2) The loan tenure is much larger than compared to other loans.  Usually these loans have tenure for a maximum 15 years. Due to this the EMIs are also small. Of course the EMI will always depend upon the value of your property and the total loan amount you have borrowed, your income, savings and repayment track record.  This is very good for loans taken on a longer period basis.
3) The best reason for going in for LAP is that you get a loan on an idle asset. Your house is a liability when you are staying in it, i.e. you do not earn from this and hence taking a LAP converts this into an asset where you can pledge this property and get a loan for any use.
4) Usually the loan processing time is also faster as compared to home loans.  Since the lender is already assured of your financial repayment capacity.
5) Unlike other loans LAP can be prepaid without any penalty charges or fees.  This has an advantage to the borrower as they can opt out anytime they have the funds available for repaying.
6) Even in case of failure to repay the loan amount you still have ownership to your flat and after selling it you can get the remaining amount for personal purposes.
These types of loans can be taken for purchasing a house, expanding business, marriage of children and also for their further education.  LAP are the cheapest available loans after home loans and one can also go in for refinancing the loan as the value of the property increases.

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