Everything in life is unexpected, and along with it, so are the expenses that come along with it. The savings that you have accumulated may prove insufficient in tough times. Most of us do not have funds available at a moment’s notice, and that is an unsettling feeling. Borrowing money from family and friends is an unpleasant experience, and so to avoid such interactions, here is an option that may help you deal with your expenses—Loan Against Property.
An unsecured loan, such as a personal loan, comes with an extremely high-interest rate and a short-term tenor, and in the case of a secured loan, such as a home loan, the funds are restricted for the purpose of purchasing a house. This is where a loan against property comes in handy because this form of loan is not only secured, but the interest rates offered are marginally lower in comparison to any unsecured loan, and the funds that you receive do not have any end-use restrictions. The funds can be used for any big-ticket expenses you have, such as debt consolidation, property renovation, higher education abroad, wedding expenses, or even business expansion.
In the case of a loan against property, the borrower will have to pledge their property to a lender as collateral to gather a large sum of financing to tackle any expense that they may have at a low-interest rate and long-term tenor. The ownership of the property is transferred to the lender for the duration of the loan, but the most beneficial aspect of a loan against property is that the borrower can continue to enjoy all the benefits of the property throughout the duration of the tenor. Once the loan is repaid in full, the property is transferred back to the borrower.
Here are some things you must know about a loan against property before applying:
- Interest Rate Factors:
The interest rate that you will be offered depends on multiple factors such as your monthly income, principal loan amount, CIBIL score or Credit rating, Background verification, property inspection etc. When you are applying for a loan against property it is considered best practice to approach multiple different lenders to establish the best rates you can receive to get the most out of your property. A small difference between the interest rates between lenders may not seem like much but in the long run, it will count for a lot of savings.
- Property Inspection to establish the LTV:
Once your loan against property has been accepted the lender will conduct a thorough inspection of your property to establish the condition of your property. Under this inspection, the lenders will want to verify the age of your property, the locality of your property and the condition of your property. The Loan-to-Value (LTV) ratio of your property decides the loan amount you will receive. A property which is located in a desirable locality, well maintained and not very old will fetch you a much higher LTV ratio.
- Loan Processing Charges:
When you are applying for a loan against property there are a few more charges that may go overlooked but they can add up to a large sum and hinder your loan affordability. There are several charges such as service charges, prepayment charges, stamp duty charges, processing fees, foreclosure charges etc. You should always calculate the total charges applicable to establish the actual cost of the loan.
- No Tax Benefits:
A major drawback of a loan against property is that there are no tax deductions that you can avail of on the loan amount. You are required to pay tax on the amount used to repay your Loan Against Property.
In this regard, home loans and education loans are far more lucrative because of the attractive tax benefits.
How can you apply for a loan against property?
The process of applying for a long-term property has been toned down to a simple and hassle-free process. Here is how you can apply for a loan against property without any hesitation:
Step 1: Visit a loan against property lender’s website.
Step 2: Navigate to the loan against property or mortgage loan section of the website.
Step 3: Enter your details to be able to download the application form. Another purpose for entering your details is so that the lender may get in touch with you.
Step 4: Enter the relevant details required in the application form.
Step 5: Submit the form with the required documents on the website itself.
Step 6: Upon submitting your application form, the lender will approach you to discuss their loan against property offers.
You may even do this offline by visiting the lender’s branch and meeting their mortgage loan customer in person.
How to calculate your loan against property EMI?
There are many online Property loan EMI calculators available that you can use to calculate your desired EMI as per your feasibility. Here is how you can use an EMI calculator:
Step 1: Visit the online Loan Against Property EMI Calculator
Step 2: You will have to enter the following details:
• Loan Amount: The loan amount you want to borrow from the lender, also known as the Principal Loan Amount.
• Tenor Period: You will make monthly payments for the duration of the loan.
• Interest Rate: The rate of interest offered by the lender or the rate of interest you have in mind based on your affordability.
Step 3: Click on “Submit.”Step 4: Based on the principal loan amount, tenor period, and the rate of interest you have entered, the EMI calculator will display the monthly installments and the total interest payable at the end of your tenor.