Any financial planner today will tell their clients that if they really wish to make a good investment, they must buy property. Owned property can even pay for its upkeep when you lease it out. If you need money quickly, you can borrow a loan on the property or even sell it (depending on the need and immediacy of requirement).
If you have rented out your property, you can still raise a loan against it. This is known as the ‘Lease rental discounting’ loan and it is offered by the most reputed banks and financial institutions in India. It is calculated and approved on the basis of the rent potential and the current market value of the property.
How lease rental discounting works
The most dominant aspects of this kind of loan are:
- The loan amount takes into account the current
rent being collected on the property, as well as the future rent receivables on
loan would traditionally be taken by businesses or sole proprietorships that
owned commercial properties. Today, reputed lending institutions offer this
loan against residential properties as well.
property’s rent potential and the applicant’s eligibility and repayment
capacity determine the loan amount.
that determine the loan amount include the property’s rent potential, the
locality where the property is located, its market value, duration of the
current lease (it should be leased out for at least six months before applying
for the loan), the owner’s credit history, repayment capability and the
documents for the lease rental discounting loan include: registered lease
rental agreement, share certificates issued by the building society, and
monthly rent receipts.
- The loan amount is calculated on the discounted value of the rent received.
Once the lease rental discounting loan is approved, the lending institution opens an escrow account. Once the loan is disbursed, the rent is no longer paid directly to the owner of the property – the renter pays the rent into the escrow account. The property owner does not receive the rent on the property till such time that the loan is repaid to the lender. The property cannot be sold till the loan is repaid, and the lender must be notified if the current renter leaves the property.