A loan against property, also known as a mortgage loan, is given by the lender when you pledge your property as security. The loan amount will be around 40% to 80% of the property’s market value, depending on the type of property. Borrowers can use the funds for any personal or business purposes, as this loan does not put any restrictions on its usage. 

However, there are some rumours surrounding such loans, because of which some people are sceptical about applying for them. Now, being aware of factual information when it comes to such types of loans is very important. So, let us take a look at some of the most common myths about a loan against property.

Myth 1: Lenders only count residential property as collateral 

This is one of the most common myths that you will come across when it comes to a loan against property. In truth, lenders accept both commercial as well as residential properties as collateral from borrowers. A few financial institutions even allow industrial properties to be pledged as collateral. 

Myth 2: There are strict restrictions on the end-usage of a loan against property 

A loan against property is different from education and home loans. Education loans restrict the end-usage to academic expenses and home loans are only meant for expenses related to the house. However, a loan against property, just like a personal or top-up loan, has no restrictions on the end-usage of funds except for illegal purposes. 

Myth 3: The property pledged as collateral cannot be used 

Many people make the mistake of believing that a property that is pledged as collateral cannot be used. However, this is not true at all. A borrower can use the property that they have pledged to the lender as collateral throughout the entire tenure of the loan. 

Myth 4: A loan against property has a very high rate of interest 

This is not necessarily true. The loan against property interest rate will depend on numerous factors such as the property value, your credit score, monthly income, and so on. Since this loan is secured, most lenders will offer an affordable interest rate, unlike an unsecured loan where the lending risk is higher. 

Myth 5: It is better to take a high-interest loan rather than pledge collateral

If you are confident in making payments on time and are financially responsible, there is no problem in pledging collateral. You get a loan against property at a lower interest rate rather than going for a loan that charges a higher rate. You can also make use of a loan against property EMI calculator to understand the exact amount of EMIs. 

After knowing the truth about these myths, you are in a much better position to decide whether this loan is a good option or not. If you choose to go ahead and apply for one, make sure to check with the lender regarding the loan against property documents to ensure a smooth process.