Can I avail a loan against my existing property to buy a new house? Theoretically speaking, you can do so. No law prohibits you from doing that. However, you should consider various factors before deciding on applying for a Loan Against Property (LAP) for financing your new house.
The LAP is a secured Personal Loan. The concept of the LAP is similar to the Personal Loan in many ways except for the fact that you provide collateral in the form of equitable mortgage of property for the former one.
Let us look at the similarities between the LAP and the Personal Loan:
Here are some differences between the LAP and the Personal Loans:
The Home Loan is one of the most inexpensive loans in the financial market. Banks and NBFCs (Non-Banking Financial Companies) provide Home Loans at attractive rates starting from 8.35% p.a. In comparison, the Loan Against Property Interest Rates are a bit higher. The interest rate for LAP starts at 9.25%.
Let us look at the similarities between the Home Loan and a Loan Against Property:
The similarity between the Home Loans and LAP ends here. Here are some points on which the LAP differs from a Home Loan. Consider these points before you decide to avail a LAP to buy a new property:
It is a valid argument. You are offering similar security in the form of an equitable mortgage. In fact, your margin is higher in case of the LAP. However, the rate of interest is lower for a Home Loan. Let us examine the reasons for the same.
The eligibility norms for a Home Loan are lenient in comparison to the LAP. Hence, the borrower who is eligible for a LAP is also eligible for a Home Loan. There should not be any reason for the borrower to avail a higher-priced loan when an inexpensive option is available.
The only reason for the borrower to go for a LAP is when the borrowers have more than three properties in their names. Specific banks give Home Loans for acquiring up to three properties. You do not get a Home Loan to acquire a fourth property. Under such circumstances, the LAP is the best option. In response to the original question, the answer is, “Yes, you can, but should you? Weigh the factors discussed above and decide whether to go for a LAP to finance your new house.
Also Read: Loan Against Property vs. Personal Loans
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.