Equity Against Property: A Clever Financial Option?
When money is needed — whether for education, home improvement, business, or debt consolidation — most individuals seek loans. While credit cards and personal loans are the first things that come to mind, there is another potent but little-known alternative: equity against property.
If you own a property, you’re sitting on a potential source of funding. This type of financing allows you to access the value locked away in your property. But what is it, how does it work, and is it suitable for you? Let’s break it down in a simple way.
What is Equity Against Property?
Equity over property, commonly called a loan over property (LAP), is a secured loan. What that means is that you pledge your owned property to a lender as collateral in return for a loan. How much you qualify to borrow is based on the present market value of your property, usually up to 50% to 70% of the value.
This isn’t about selling your house. You keep your house and keep living in or using it. You’re just using its market value as collateral.
How is Equity Calculated?
Equity is the amount between the market value of your property and any loan you still have on it. For instance, if your property is worth AED 2 million and you still have AED 500,000 owing on a mortgage, your equity is AED 1.5 million. A lender may be willing to lend you up to 70% of this equity, so you could borrow more than AED 1 million.
Why Individuals Choose Equity Against Property
Let’s face it — when funds are required, the initial reaction is to opt for a personal loan. However, equity against property comes with its own distinct benefits.
Lower Interest Rates
Because this is a secured loan, lenders consider it less risky compared to unsecured loans such as credit cards and personal loans. Therefore, interest rates tend to be much lower. That equates to lesser EMIs (equated monthly installments) and easier to repay debt.
Higher Loan Amounts
With property against equity, the quantum you can avail is usually much great