Mortgaging an asset like a property helps both businesspersons and salaried individuals fund large expenses or consolidate debt. Herein, the loan amount is relatively high and repaid over a longer tenor. Subsequently, individuals must remember some key pointers, apart from keeping in mind the eligibility criteria, before availing Loan against property.
Below are discussed the essential things one must remember before taking a loan against property.
- Interest rates
As the property loan is a secured financing option, the interest rate is usually lower than other unsecured financings. However, these rates can vary from one lender to another and depend on other factors, including the borrower’s credit profile. Hence, individuals must compare the rates of various lenders and select accordingly.
- Type of interest rates
One must also be careful about choosing the types of interest rates before availing mortgage loans, namely fixed and floating rates of interest. The fixed interest rate on loan against property remains constant for the entire tenor and does not affect by market fluctuations.
Conversely, the floating rate of interest varies throughout the debt obligation and moves up and down with the market condition. Usually, fixed rates are higher than floating rates. Therefore, one must remember this key point and choose per their suitability.
The tenor of a loan against property in India can range between 15 and 20 years and may extend based on the lender. A longer tenor leads to lower EMIs, which, in turn, helps reduce the monthly burden. However, one must keep in mind that a longer tenor also increases the interest payment, making it more expensive. Therefore, individuals must opt for a suitable tenor that helps them repay the loan amount efficiently.
- Tax benefits
A Loan against property is not tax deductible. However, in certain circumstances, individuals can gain tax benefits based on the loan’s end-use. For instance, under Section 24 (B), one can get tax exemption on interest payment given the funds available from the loan against property is utilize to finance new home. In addition, under section 37 (1), individuals can write off the loan as a business expense if they use the amount for business purposes.
- Processing and additional charges
In the case of home mortgage loans, lenders levy a one-time non-refundable processing fee. Apart from this, there are statement charges, stamp duty charges – which vary as per state laws – late payment charges, and convenience charges if switching from floating to fixed interest rates or fixed to floating interest rates. In addition, there are pre-payment penalty fees, cheque bounce charges, and others. Therefore, individuals must know about these various charges to avoid any future discrepancies.
- Property ownership
Before approving a loan against a property, lenders check the property details and ensure the land is not disputed. Also, they check if the property documents are legal and the ownership is with the applicant. Therefore, individuals must be careful about these documents and details. Also, if a property has multiple ownerships and a loan can apply without mutual agreement, a borrower can face loan approval issues. Hence, borrowers must pay attention to this factor as well.
- Property valuation
A property loan is offer against residential and commercial properties. Here, financial institutions check the current market value of the property and decide the eligible loan amount. Individuals can get a high loan to value ratio from lenders in the case of residential properties. One must check the LTV followed by various lenders and choose accordingly.
For instance, reputed HFCs offer LTV up to 80% of the mortgaged property’s current market value and, thus, can offer larger loans against property. Further, these HFCs provide pre-approved offers to streamline the loan availing process. These offers are available on various financial products, such as loans against property and home loans. Individuals can check their pre-approved offer by providing their name and contact details.
Availing a Loan against property involves a lot of responsibility. Therefore, individuals must remember the above-mentioned important pointers to ensure a hassle-free borrowing experience.
Also Read: What Is A Commercial Property Loan In India?