Loan Against Property: Important ThingsTo Know
In situations when one is in immediate need of funds, one of the best waysis to avail a loan against property from a crediblelender by pledging your property as a collateral.
Reasonable interest rates, and long repayment tenure makes LAP an attractive borrowing proposition. However, it is essential to know some critical aspects before availing such a mortgage to enjoy the benefits.
Pick a Suitable Repayment Time Frame
Most lenders have flexible loan tenures, and you can choose one according to your financial situation. Assess the important expenses that you may incur in the future and go for a tenure that is comfortable for you without having to compromise onyour basic requirements.
If you are short on money currently but anticipate more cash flow in the future, go for longer tenure with low EMI. Remember that the interest will be higher for longer tenures. If you are confident about managing a high EMI, go for a shorter tenure to enjoy low-interest rates.
Know Your Property Value
The loan amount you get will primarily depend on the market value of your property. If it is a commercial property, the loan amount can be lesser. Know the Loan to Value (LTV) ratio before going for a loan. Most lenders give a loan amount of up to 50-60% of your property’s market value.
The appraiser from the lending institution comes up with a valuation based on the factors like
- Age of the property
- Location of the property
- Stability of the property
- Size of the property
- Recent property deals in the area
- Estimated construction expenses incurred in the property
Keep All Necessary Documents Ready
Check all eligibility requirements before taking a loan. The eligible age can be 18 to 65 years for LAP. The documents required typically include
- Address Proof
- Identity Proof
- Proof of Income with latest Form 16 and IT returns
- Last six months’ bank statements
- Sales deed and registration documents of the property
If you are taking the loan with a co-applicant, keep all their documents handy too. Having a co-applicant enhances your chances of getting a loan. Having women co-applicant can also get you competitive interest rates.
Choose the Right Lender
Analyse the different loans and repayment options provided by financial institutions. Choose a lender based on the following features
- Balance Transfer facility: If you are dissatisfied with an existing loan with another lender, some institutions allow you to transfer that loan. Keep in mind that there might be additional charges for the transfer.
- Flexible repayment: It is better to select a lender that can give you flexibility in choosing loan tenure and EMI. Some institutions also give you a choice of fixed rate and adjustable rate loans.
- Interest rates: Compare the interest rates for a specific tenure to get a fair comparison. Some banks can give you a low-interest rate but will be rigid about your loan tenure. While interest rate surely is an important consideration, don’t focus only on this factor. Look at the overall cost, which would include other charges and fees.
Understand the Consequences of Defaulting on a Loan
Once you have taken a loan, pay the EMIs diligently. The penalties incurred for late payment and defaulting on payments can be huge. Consider taking term insurance to cover your loan in the event of any unfortunate occurrences.
Failure to pay the loan can lead to the confiscation of your property. Losing a residential property can be disheartening for the family. So, plan your monthly expenses well to accommodate the EMI.
A loan against property can be a lifesaver when you have an unforeseen and immediate requirement of funds. Since the loan is not restrictive about where you spend the money, you can take this loan to fulfil needs like business expansion, medical treatments, higher education or planning a wedding.