What if the rates of your Mortgaged Property fall?

A loan against property is secured finance taken against the mortgage of your residential or commercial property. While reducing property prices brings cheer to potential buyers, it can cause concern if you have mortgaged your property to borrow a loan. A significant fall in the prices can make your lender take specific steps, resulting in difficulties for the borrower. This blog will talk about what happens to a loan against property if property rates fall.

In a Loan Against Property, a bank offers a loan only up to a certain percentage of the property value, popularly known as the LTV (Loan-to-Value) ratio. For instance, if the value of your property is, say, Rs. 1 crore, the maximum loan amount that a bank will offer you will be upto Rs. 75 lakhs, i.e. 75% of the property value. This will include stamp duty and registration charges. Although the loan amount increases, this LTV ratio decreases to 60-65%, varying from bank to bank.

The property mortgaged acts as a security for the bank. Therefore, if the borrower cannot repay the loan, the bank can easily recover the loan amount by selling the property in question.

To be ready for any such situation, the bank demands that the property value be greater than or equal to the outstanding home loan amount. If the rates of your mortgaged property fall, the lender could ask you for additional collateral or to pay the difference immediately. The tricky thing is, in such a scenario, if you fail to pay the additional balance or provide additional security, your lender has the right to seize your property and term you as a defaulter.

Among others, a few of the things that a lender can resort to if the property rates fall are:

• As the lender is unlikely to bear more risk than the property value, he will ask you to pay the difference in any investment form. Be it gold, or shares, or another property, etc. Apart from these, you can also pay a one-time margin amount if the rates of the mortgaged property fall considerably.
• You should avoid providing this additional balance as an investment that is volatile and fluctuates very quickly. It is because the lender will again ask you to pay the difference if the price of the additional security falls.
• Always repay the amount in small instalments whenever possible to reduce the principal amount. So that if the principal amount is low, you can manage the situation better as property rates fall.
• Negotiating with your lender can also help if you have a good repayment record. For example, you can ask the bank for more time to arrange the remaining funds if you have regularly paid your EMIs.

Follow these practices to keep your mortgage loan safe. If you have any queries related to the loan, please feel free to contact us at +91-8448389600 or write to us at care@myloancare.in for any clarifications.