Owning a property is advantageous for several reasons: you could stay there and have an asset in your name for future financial security, lease it out to generate additional income or even use it as collateral for a loan. If you’re wondering, ‘What is a loan against property?’, it is worth knowing that this is a secured loan that requires you to pledge property as collateral to access substantial funds at an affordable rate of interest.
A loan against property (LAP), also known as a mortgage loan, allows you a long repayment tenor along with its substantial and affordable sanction. So, you can use it to finance higher education, a second home purchase or to consolidate existing debt. Whatever your need for credit, you get a sanction while remaining as your property’s lawful owner. However, if you default on repayment, lenders have the right to auction your property in order to gain back the money that was lent to you.
Now that you’re up to speed with the basics of a loan against property, here are four factors to keep in mind before you apply for one.
Consider the Sanctioned Amount
A crucial factor of any loan is the amount sanctioned to you. You need to ensure the amount you’re getting is enough to cover your expenses wholly while also accounting for a buffer in case of emergencies. The most important factor that is taken into consideration while determining the sanction is the value of your property. Depending on the current market value of your asset, lenders in most cases grant you around 60% to 80% of your property’s worth as a loan.
Check the Eligibility Criteria and your Credit Score
Before applying for an LAP, you must check the eligibility criteria and ensure that you meet every requirement. Even though an LAP is a secured loan, lenders follow a protocol in order to sanction your loan. This is also true for documentation, and you must produce accurate documents required for a loan against properly as any mismatches, especially with title deeds is sure to cause problems. Another important factor that is considered in the application process is your CIBIL score. This is an indication of your creditworthiness and having a good score will get you a better loan offer with more suitable interest rates.
Look for affordable and convenient features
Given the fact that an LAP is a long-term financial commitment, finding the best option is in your best interest. You need to ensure that it has easy repayment modes and offers additional benefits to make for a better borrowing experience.
A great option to consider is the NBFCs as they have minimal processing fees and foreclosure charges whether you opt for the fixed or floating rate variant.
Besides the affordable charges, you can avail of a loan amount up to Rs.1 crore as a salaried individual and Rs.3.5 crore if you are self-employed. You can also borrow this loan on Flexi Loan terms. Owing to this facility you can withdraw from your sanction in parts, multiple times.
Here, interest is charged only on the amount you utilise, so you can save more and address unpredictable or recurring needs easily. Moreover, you can choose to repay the loan as interest-only EMIs to manage your cashflow better.
Read the Fine Print
Before opting for an LAP, check with the lender about additional charges and costs. Failing to do so will cost you a significant sum in the form of processing fees, administration charges and inspection/ market valuation charges. These charges quickly add up as they’re mostly charged in percentages rather than flat figures.