Loan against property is one of the most popular asset-backed loan options available in India. It offers easy processing, flexible EMI options, and no end-usage restrictions, among several other benefits. With loan against property, borrowers pledge his/her property in return for a high-value loan at a competitive rate of interest.
Individuals can also secure a loan against property and use it to fund his/her business, pay for higher education and meet varied financial requirements. Nonetheless, only after the fulfilment of certain eligibility parameter can an applicant be eligible for the funds. Therefore, before applying for the advance, one should consider certain factors that will make the loan borrowing process simpler and its repayment easier.
5 important factors to know before applying for a loan against property
For a loan against property, the funds disbursed depend on the market value of the mortgaged property. Usually, a borrower receives 60% to 70% of the property’s market value, depending on the lending institution. Individuals looking for a higher value loan can approach different lenders to get the best value of their property.
- Eligibility criteria
Applicants should qualify certain criteria set by the lending financial institution to be eligible for a loan against property. The loan against property eligibility criteria varies from lender to lender. It is evaluated based on the applicant’s age, employment status, income, credit history, etc.
- Rate of interest
Borrowers will be charged a certain interest rate on the loan amount based on several factors like their income, principal amount, loan tenor, credit history, etc. Individuals should compare several lenders to ensure they get the best possible offer for their mortgaged property.
Applicants can use the online loan against property EMI calculator to calculate the total payable interest at the end of the tenor.
- Repayment tenor
As a secured loan, the tenor of a loan against property usually extends up to 20 years. While a long tenor reduces the risks of default by lowering the EMIs, it increases the total payable interest, thereby increasing the cost of borrowing. Since the interest on a loan against property is compounded, borrowers have to pay more in the long run.
- Tax benefits
A loan against property is also known as a mortgage loan, wherein the borrowers enjoy certain tax benefits. If the borrowed funds are used to finance his/her housing needs, according to Section 24 (B) of ITR, individuals will be eligible for exemptions of up to Rs.2 lakh on interest paid. This means if a borrower uses this loan amount to purchase land or a home, he/she stands eligible for the tax deduction on interest payment.
- Joint loan option
Individuals looking for a loan against property without income proof can consider adding a co-applicant with a regular and valid income along with a good credit history. This will increase his/her credibility. Individuals can also check their loan eligibility by using a loan against property interest rate calculator to get an idea of his/her EMIs and their total repayment capabilities. Also, opting for a lower loan to value (LTV) further increases applicants’ chance of getting the loan approved.
Applicants will need to submit a few necessary documents for evaluation. Loan against property documents required includes the applicant’s identity proof, address proof, original property papers, last six months’ bank statement and processing fees.
In case of a joint loan, the co-applicant’s documents like income proof, address proof, identity proof, bank records of the last 6 months etc., will also have to be submitted.
Several financial institutions also provide pre-approved offers on loan against property to streamline the loan application process by doing away with document verification. These offers are valid on various financial products, including home loan, loans against property, etc. Individuals can check their pre-approved offer by providing their name and mobile number.
Now, while applying for a loan against property, there are several prepayment and foreclosure charges levied in addition to the interest. Processing fees, EMI bounce charges, statement charges, stamp duty, etc., are applicable depending on the lending institution.
Take note of these charges, alongside the above-mentioned factors, before applying to streamline the entire process.