Factors to Consider While Taking Loan Against Property
A loan against property, which is also known as a Mortgage loan against property, has become very popular. There are many loans that you can receive from banks and financial institutions by using your current property as collateral or security. Depending on the value of the property you want to hold as security, you can obtain up to 70% of the market value as a loan amount. You can get approximately Rs. 25 crores with a repayment tenure of 15 years and more with the loan against property. Any residential or commercial property can be considered as security provided that you have all the required documents.
Getting a loan against property is very easy because of its minimal documentation process. You can get quick and large funds by verifying your personal and property details with the lender. The best part about this loan is that you usually get low-interest rates. Therefore, you can save yourself from the burden of huge monthly interests.
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Factors to consider while taking a loan against property
If you are planning to get a loan against property, here are a few factors you should consider before taking the loan.
The factors include the loan amount, income, tenure, credit history, and most importantly the banking institution you choose to get your loan from. When you are planning to get a loan against property, ensure that you are getting the loan at an affordable interest rate. You should do thorough research on the banking institutions that are willing to lend you the loan at low-interest rates. You may feel that there is only a slight difference in the interest rate offered by various banks and lending services, but even a small difference can affect your ability to repay the loan.
The loan amount that you get for this loan primarily depends on the market value of the property you have decided to use as collateral. The maximum loan amount you can get is 80% of the market value but differs from lender to lender. Compare different banks and their offerings to make the right decision.
Mostly, the lenders offer flexible and convenient repayment tenures of up to 15 years. Few banks even offer tenures stretched up to 20 years. It is advisable to get longer repayment tenure as you have to pay smaller monthly EMI’s. You can evenly plan your monthly payments for the period. But you should also keep in mind that longer tenure can increase your cost of borrowing because compound interest is calculated on this type of loan. This means that with longer tenure you might end up paying more in the long run.
An important thing most borrowers forget to consider before taking a loan is the processing and other charges involved with it. Lenders can impose prepayment charges, service charges, statutory charges, and stamp duty as per the state charges. Therefore, you should calculate these charges and consider them as well when evaluating the actual cost of acquiring a loan. These charges can seem small at first but can significantly influence the cost of borrowing and can hinder your ability to repay the loan. Hence, do not ignore these charges and consider them while taking the loan.
This is because the lender should be aware that all the owners have agreed to keep the property as collateral to procure the loan. You can also include the name of your spouse or children as co-applicants, even if they are not co-owners of the property to enhance your eligibility for the loan.
No tax benefits
Unlike home or education loans, you do not get tax benefits on a loan against property. You will have to pay taxes on the loan amount while repaying this loan to the lender. Due to this benefit, many borrowers prefer taking home or education loans despite the higher rate of interest. While applying for a loan against property, you should definitely consider this factor as you have to pay additional money including the loan amount and other charges.
Though a loan against property offers low-interest-rate and long repayment tenure, it involves additional charges and tax payments that can affect your ability to repay the loan on time. If you fail to repay the loan, you can have a negative mark on your credit profile and will have to face severe penalties. Thus, you should avail of a loan against property only if you are confident that you can manage to pay monthly payments along with additional charges.