Does Your Loan Justify Your Property Value?

There is no guarantee which financial crisis could knock on your door, consider the unpredictability of financial, medical, or career-related emergencies in life. The expenses in these emergencies can strip off all savings in your accounts. In these dire situations, assets like property, whether it's a completely built establishment or an open piece of land possessed by you, can provide you financial assistance with the help of a mortgage loan against property.

A mortgage loan is a type of loan in which a bank or any financial organization utilizes assets like property, land, etc. as collateral security and provides funds to the owner of these assets. The amount of loan against land mortgage is analyzed based on the following parameters:

•    The market value of the property
•    Type of the property
•    The income of the applicant

The market value of the property
Any bank or financial organization calculates the market value of your property by analyzing various factors such as square footage, lot size, location, age, type of property, etc. The bank then avails funds according to the Loan To Value Ratio (LTV), which is defined as the maximum amount a bank could provide as a loan in comparison to the market value of your property. It differs according to the type of property.

Loan-To-Value (LTV) Ratio:
A Loan-To-Value Ratio provides the information about the actual market amount that your property posses in comparison to the loan that can be provided for those properties. The LTV ratio is utilized by the lenders to determine the risk in providing the mortgage for a property. Typically, loan assessments with high LTV ratios are considered higher risk loans. The organization that provides higher LTV loans (90% or above) will charge a high amount of interest as they are facing major risk in utilizing the property as collateral.  

Type of the Property
The property type helps to calculate the LTV ratio as different types of property has a different value of this ratio. The bank or a financial institution always take up properties as collateral which are having higher market value than the amount of loan required by the applicant in order to avoid risks. There are four categories which incorporate all the property assets:

1.Residential (e.g., houses)
2.Commercial (e.g., shops, company buildings, etc.)
3.Industrial (e.g., factories)
4.Open Plot

The type of property or the type of land is one of the major parameters that influence the amount of Loan Against Land Mortgage.

The income of the Applicant
The income of the person applying for the mortgage loan or loanee is also a very crucial criterion for determining the potential of the applicant to repay the loan with the rate of interest in the given amount of time. This determines his eligibility for the income programs provided by the bank that asses the down payment and interest for the mortgage loan.

Eligibility for mortgage loan against property:

• Repayment Capacity: The amount obtained after applying the LTV ratio to the market value of the land or property asset is then compared to the income of the owner of these assets. The balance between the income of the loanee and the amount of mortgage loan against property owned by him determines whether he would be able to repay the loan under the given structure or program provided by the financial institution or bank i.e., his eligibility for applying for the mortgage loan.

• Legal Ownership Of Land: The lender will look up the legal credibility of the land mortgage that the applicant is providing as security. The applicant must be the sole owner of the property rightfully as well as legally according to the legal documents of the property without any discrepancies.

• Age Of The Applicant: The organizations generally provide a high amount of loans to a person of age 24 years than a person of age 50 years. Age can play a significant role in determining the tenure for the loan.

• Other Assets: The lender will look upon the other assets owned by you which you can use to repay your loan. The lender will only have right over the property that you have used as collateral, it could not touch other properties to get back its loan. It is up to you to use other properties to repay the loan.

Overview

The mortgage loan is a type of loan in which the bank or financial organization provides a significant amount of capital to a person while accepting the assets like property, land possessed by the person as collateral security. The lender calculates the market value of the property and calculates the loan against land mortgage according to the LTV ratio and assess the eligibility of the buyer based on his income, property value, age, legal credibility of the owner of the property. If the applicant fails to repay the loan timely then the lender can auction the property to recover loan dues.

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