A loan against property (LAP) is a type of secured loan where a borrower pledges their property as collateral to get a loan from a financial institution.
As with any financial product, there are many technical terms and jargon that can be confusing for borrowers.
This guide provides a complete glossary of the most commonly used terms and terminology in the LAP market.
Here is a complete guide to the loan against property glossary and terminology:
- Collateral: The property that a borrower pledges to the financial institution as security for a loan.
- Lender: The financial institution that provides the loan against property.
- Borrower: The individual or entity that receives the loan against property.
- Mortgage: The legal agreement between the borrower and lender, which gives the lender the right to take possession of the pledged property if the borrower defaults on the loan.
- Principal: The amount of money borrowed by the borrower.
- Interest: The cost of borrowing money, usually expressed as a percentage of the principal.
- EMI: Equated Monthly Installment is the amount of money that a borrower pays to the lender every month until the loan is fully repaid.
- Loan Tenure: The period during which the loan is repaid.
- Prepayment: The process of repaying the loan before the end of the loan tenure.
- Foreclosure: The process of the lender taking possession of the pledged property due to the borrower's failure to repay the loan.
- Loan-to-Value Ratio (LTV): The ratio of the loan amount to the value of the pledged property. A high LTV indicates a higher risk for the lender.
- Processing Fees: The fees charged by the lender for processing the loan application.
- Prepayment Penalty: The penalty charged by the lender if the borrower repays the loan before the end of the loan tenure.
- Credit Score: A numeric representation of a borrower's creditworthiness based on their credit history and financial behavior.
- Amortization Schedule: A table that shows the EMI breakup between principal and interest over the loan tenure.
- Disbursement: The process of transferring the loan amount to the borrower's account after the loan is approved.
- Title Search: The process of verifying the ownership and legal status of the pledged property.
- Stamp Duty: The tax levied on the mortgage deed as per the applicable state laws.
- Floating Interest Rate: An interest rate that varies according to market conditions.
- Fixed Interest Rate: An interest rate that remains constant throughout the loan tenure.
- Margin Money: The amount that the borrower has to pay upfront to avail of the loan against property.
- Top-up Loan: An additional loan that can be availed by the borrower on top of an existing LAP.
- Co-applicant: An additional applicant who applies for the loan against property along with the primary borrower.