A loan against property is one of the most important financial products that could aid you at the time of a crisis. One of the greatest benefits of this loan is that your lender will not ask you about the reason for availing it. It poses no restriction on its end users. You can use it to pay off your medical bills, home renovation, vacation and much more. The interest rate in case of loan against properties is also low when compared to other loan products, as the security pledged is expensive. However, you need to remember 5 crucial things before applying for this loan type.
- Repayment Capability– Your financial institution will first assess your payment history and your ability to repay a loan before granting any funds to you. If you have any prior loans or debts, the chances of getting a new loan are less. This is because the lender believes you may not have enough money left to pay your new loan’s dues. Some financial institutions additionally evaluate the number of dependents in a person’s household. If you have a large number of dependents, the lender might consider you to have poor repayment capability.
- Explore the options– Loan against properties comes with long tenures and high loan amounts. As such, it is advisable to conduct extensive research on the rates and offers available in the market with various lenders. Choosing a lender whose offer does not suit your budget may hurt you in the long run. While evaluating multiple lenders, one should not limit their study to the interest rates. You must also check for the fees associated with your loan against property. These fees may include foreclosure charges, prepayment charges, processing fees and more. You must also consider the loan to value ratio.
- Documents– Whenever you are applying for a loan against property, always ensure that the set of documents are properly lined up. You must also ensure that your property is free from any legal disputes. Before sanctioning the loan, your lender will check for property ownership papers. If there is any dispute in the ownership title of the property, your lender may refuse to grant a loan. Apart from the preceding conditions, you must make sure that your property is insured. In the event of non-insurance, the lender will not approve your loan. These loans are available for long terms, say up to 15 years. And if you have proper documentation, you can expect quick approvals with various repayment options.
- Property’s Worth– A loan against property is one that is secured by an immovable asset, such as a commercial or residential property. Your lender will assess your property before determining your loan eligibility and amount to sanction. The lender will determine the loan amount based on the current fair market value rather than the previous or prospective future value. Financial Institutions typically lend up to 50% to 60% of a property’s market value. The loan amount might range from Rs 5 lakh to even crores, with a maximum term of 20 years. However, this factor may differ from one financial institution to another. The property’s location also plays a major role in determining your eligibility. If your property is located in a metro city, then it may fetch a larger loan amount compared to the one located in a small town. Also, a commercial property may help you get a better deal when compared to a residential property.
- Loan Tenure– A loan against properties comes with a long tenure, as mentioned before. The maximum tenure can range anywhere between 15 years and 20 years, depending upon the applicant’s profile and the lender. In case of a loan against property, the EMI is spread over many years, and the rate of interest is also lower as compared to other loan forms. This definitely benefits the borrower and makes repayment easy. However, it does not mean that you start over-leveraging. Over-leveraging may lead to the situation of payment default, and you might end up losing your property that is mortgaged as collateral. As such, you should always choose the loan tenure and loan amount as per your requirements.
A loan against properties provides you with immense flexibility, high loan amount, and low interest rates. It also provides a long payback term and end-use flexibility. While the long-term benefits of this loan make it a better choice than other loans, it is vital to keep in mind that if the borrower defaults on payments, the lender gains ownership of the property.