There are numerous advantages of taking a loan against your property or a mortgage loan. When compared to other loan forms, mortgage loans come with a feature of quick loan disbursal, simple loan procedure, and many more. For sanctioning loan against property in India, financial institutions are accepting both commercial or residential property. So, if you have any of the preceding property, you can easily avail of a loan against the property. Today in this article, we will discuss the benefits of a loan against property and will also cover the points that borrowers should keep in mind when availing of this loan.
Benefits of taking Loan Against Property:
Easy to avail:
As borrowers are putting their property as collateral, financial institutions easily provide the loan after keeping the property documents as a mortgage. Due to the low risk involved, financial institutions are more inclined to lend this loan than unsecured loan forms. The financial institution determines the loan amount after assessing the value of your property to be mortgaged. However, one must always keep in mind that in the event of long-term EMI default, the financial institution has the right to auction the property to recoup the debt. As a result, in a loan against property, the risk of losing the property is always there.
A loan secured against a property is usually provided for a period of five to fifteen years. However, depending upon the applicant’s profile, some financial institutions may offer this loan for a maximum tenure of 20 years. If you are taking this loan for a business purpose, you get sufficient time to repay your debt. This way, you can focus on your business without having to worry about your loan EMIs. However, take in mind that the longer the payback period, the larger the interest component will be.
Lower Interest Rate:
Loan availed against property comes with a lower interest rate. Borrowers can avail of this loan at a lower interest rate due to the lesser risk involved. This loan product is more viable for any long-term purpose. One can use the funds to finance long-term projects or business expansion. When compared to other loan forms such as a personal loan and business loan, a loan against property comes with a higher loan amount, longer loan tenure, and a lower rate of interest.
As stated earlier, a loan secured by the property has a longer payback term which means the longer the debt repayment term, the lower the loan EMI. The interest component, on the other hand, will be higher due to the increased number of EMIs. As a result, one should apply for this loan after analyzing their personal or commercial needs.
No Restrictions on its Usage:
Borrowers can use loan against property for any purpose. You may use it for either commercial purpose or personal purpose. Funds from this loan can be used to finance medical expenses, business expansion, debt consolidation, wedding expenses, child education, and many more. The loan secured against a property is free from any restrictions, and one can use it for multiple purposes.
Factors to Keep In Mind When Taking Out a Loan Against Property:
Borrowers keep their property as collateral for securing a loan against property for business or any other purpose. The lender assesses the property’s worth for determining the loan amount. Furthermore, the financial institution determines the loan amount based on the current worth of the property rather than a previous or projected value. Similarly, applicants can only borrow up to 70-80 percent of the property’s worth. In light of these considerations, a borrower should examine the loan-to-value (LTV) ratio offered by different financial institutions. Choose the lender that provides higher LTV on your property.
Before granting a loan, the financial institution must ensure that the property used as collateral for the loan is free from any disputes and legal obligations. If it is discovered that the property papers do not clearly state who owns the property, the financial institution as well as borrower both can face difficulties. Financial institutions will find it difficult to recoup their loan, whereas the borrower will find himself/ herself in legal trouble.
Furthermore, if the property has many owners and all of them do not agree on the loan terms, the financial institution may refuse to grant the loan. Therefore, it is advisable to get the property papers clear and get a NOC in case of multiple owners.
As the amount of money that a borrower avails on a loan against property is large, it is critical that the borrower meets the income requirements to repay their loan amount. Furthermore, when the borrower has a high steady income, the financial institution has a high assurance of constant loan EMI payment.
While the financial institution has mortgaged property to recover their loan amount, receiving timely EMI payments from the borrower is the primary objective of the financial institution.
Interest Rate Charged:
The interest rate you will pay on your mortgage loan will depend on a variety of factors, including your income, principal loan amount, payback tenure, and creditworthiness, as well as on the lending service and financial institution you choose. If you are thinking about taking out a loan secured by property, be sure you are getting the best deal possible for your asset.
You will need to put in some effort to discover a financial institution that will offer you a reasonable interest rate. While little variances in LAP interest rates may not appear to be significant, they might have a significant impact on your capacity to pay back the loan amount in the long run.
The amount of a fund a borrower can obtain for a loan secured against a property is mostly determined by the market worth of your property. Depending upon the financial institution, a borrower can acquire anywhere between the range of 50 percent and 80 percent of their property’s current market value. If your wants are high, explore around to find a financial institution that will fund you the higher LTV on your property.
Loan against Property Charges:
The various processing and other fees that come with a loan are key costs that borrowers typically overlook when calculating the cost of a loan. Some financial institutions may charge prepayment fees, service fees, and statutory fees, in addition to the stamp duty (as per state regulations) that you are required to pay to obtain the loan.
Therefore, it is vital that you consider all of these fees when calculating the true cost of the loan. Such fees may appear insignificant, but they can have a major impact on the cost of obtaining the loan and your capacity to repay it.
If you are planning to take out a loan; but are not sure which financing option to choose. Consider the advantages of a loan against property. The loan can assist you during any sudden or unexpected financial emergency. However, before applying for this loan form, applicants must consider the above-mentioned factors in order to get a better deal on their loan terms.
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