Availing a loan against property is a significant financial liability for most borrowers. However, financial experts advise considering a few pointers to settle for an affordable one with a lower loan against property interest rate. Also, as a LAP provides a substantial amount, borrowers can avail this loan to meet multiple requirements at once or fund big-ticket expenses, such as weddings, abroad education and others.
Six important factors to note before availing a loan against property
The six primary factors to consider before settling for a LAP are –
- Rate of interest
The rate of interest is one of the primary deciding factors for a loan against property affordability. This factor is directly related to the EMI, thus affecting affordability significantly. So, before selecting a lender, consider knowing about the rate of interest as this will ease the financial planning. But, prospective borrowers must understand that this factor depends on multiple pointers, including CIBIL score, property, job profile of an applicant and others.
- Repayment tenor
While availing of a loan against property, get a lucid idea about the repayment tenor. Individuals must know that a tenor is inversely proportional to the EMI amount. A longer tenor will fetch a lower EMI, while a shorter tenor will increase the EMI. But, it is important to note that as tenor increases, a borrower has to pay more EMIs, thus increasing the overall borrowing cost. Hence, for an affordable EMI, one must choose the tenor per financial capability.
Most leading financial institutions don’t provide guidelines on the usage of loan against property. Individuals can use the borrowed funds for various purposes, such as an education loan against property, or debt consolidation loan. But, one must note that the rate of interest varies per the fund usage.
- Loan amount and disbursal
The maximum loan amount that an individual can avail of is directly related to the property. The location of the property, its amenities and the loan-to-value ratio considerably affect the loan amount. Leading lending institutions provide an LTV ratio of around 70-85% of the property’s market value. Hence, to get a high loan amount against a property, make sure to choose the right lender offering a high LTV ratio.
Apart from it, the time required for disbursing a loan against property is also important. Leading financial institutions have a lenient loan against property eligibility criteria. Besides, easy documentations and eligibility criteria help avail this loan in a hassle-free manner.
- Tax benefits
One of the most significant benefits is the loan against property tax benefits. Prospective borrowers under Section 37 (1) and Section 24 (B) are eligible for tax benefits on interest paid per the Income Tax Act. Applicants must ensure the chosen lender offers these benefits. But before applying for tax benefits, one must make sure to check the details of these sections and note the benefits available on interest paid, not on principal repayment.
- Prepayment charges and processing fee
Every lender charges a minimum prepayment fee and processing fee for a loan against property. A processing fee is a charge that a lender levies to process a LAP, while a prepayment charge is a fee that a lender charges to foreclose a loan. Nevertheless, these charges are significantly less, and prospective borrowers must check these to settle for an affordable borrower that provides value to their property.
Although LAP provides considerable monetary funds to meet multiple expenses such as business or education, individuals must also note that the government has induced some of the schemes for common citizens to provide employment opportunities. One such scheme is the Pradhan Mantri Rozgar Yojana which offers myriad benefits for unemployed educated youths of India.
Selected financial institutions extend pre-approved offers that simplify and expedite loan processing. Such offers are available on a range of financial products like loan against property, home loans, etc. Enter your name and contact number to check your pre-approved offer.
Hence, before settling for a lender, make sure to check the loan against property interest rate to settle for an affordable one.