Individuals who own a property and are in need of substantial fund can easily apply for a loan against property.
Most financial experts suggest to avail a loan against property due to it’s no end-use restriction and comparably lower interest rates. However, whether it’s a favourable idea to opt for this loan or not can be easily assessed through the factors stated below.
Factors one should consider before applying for a loan against property
Applicants planning to apply for a property loan need to consider these factors before making a decision:
- Know the value of the property to be mortgaged
The amount of loan that will be sanctioned against loan against property greatly depends upon the market value of the property kept as mortgage. The loan amount one would get, as per the borrower’s property value, also differs from lender to lender. This is due to varying LTV ratio.
So, before applying for one, conduct some research on what actually the property value is according to the present scenario.
- The interest rate provided on the loan
As the property loan is backed by collateral, lenders usually offer affordable interest rates on it. But this rate might differ from lender to lender. The interest rates also depend upon an array of factors like credit score, the income of the applicant, outstanding debts and so on.
When applicants avail a loan against property, they also get the flexibility to choose between fixed and floating interest rates, as per their choice.
- Loan repayment tenor
A loan against property can usually be taken for a longer tenor. However, if an applicant wants to opt for a short repayment tenor, they need to pay more EMIs every month. On the other hand, one can reduce their payable EMIs by extending the loan repayment tenor.
The borrowers should also calculate EMI beforehand using the loan against property EMI calculator. This will help in choosing a suitable lender for a loan against property.
- The lender’s eligibility criteria
Every financial institution has its own specific loan against property eligibility criteria. Like, for some financial lenders, the applicant should be of a minimum of 25 years of age, while for some, it can be 30 years as well. So, if the lender finds that the eligibility criteria of the applicant do not match their requirements, they might reject the loan.
- Tax benefits
In case the borrower is using the sanctioned loan amount to buy another house or renovate it, then he/she can claim tax benefits under Section 24(B) of the Income Tax Act. One can claim deductions on the interest payment up to Rs.2 lakh on house mortgage loans in one financial year.
- Prepayment and foreclosure fees
Often a situation arises when the borrower decides to prepay the loan before its tenor terminates. In this case, the lenders might charge some amount to the borrowers as foreclosure fees, and they are liable to pay these fees.
Most financial lenders charge these fees on fixed interest rates and not on flexible or floating interest rates. But this also varies from lender to lender.
These are some crucial factors to consider before one plans to avail a loan against property.
Various financial lenders also provide pre-approved offers to their customers that help in simplifying the loan against property application process. These offers are available on varied financial loan products like home loans and others. Applicants can check their pre-approved offers from the lender’s website. All they need to do is provide the required credentials like their names and contact numbers.
So, applicants planning to avail an LAP need to consider these factors to make an informed decision.