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Thursday, May 10, 2018

An Insider's Guide to Taking Loan Against Property

Sometimes, in spite of being a careful planner, you might face a financial setback. In such times, a little financial aid can go a long way in helping you get back on your feet. A loan would be one of the safest bets to ease your monetary worries.




You can always opt for a personal loan, but since they have a high rate of interest, you’ll have to repay it as fast as possible. Also, a personal loan is generally unsecured and doesn’t require any collateral, restricting you from applying for a higher amount.

However, there’s no need to lose hope as you can always opt for a loan against your property. This kind of loan helps you financially while offering at a lower interest rate. What’s more, you still own your property during the entire tenure and you can choose to repay the loan amount at a pace that suits your financial standing.

Interested? Here’s all you need to know about taking a loan against property and why it might be the best option for you.

What is Mortgage?

When you give a lender conditional ownership of your property in lieu of money, the process is known as mortgaging. You have the choice to mortgage any kind of property you own and it doesn’t matter whether you’re currently occupying the property or you’ve rent it out.

As long as you legally own it, you can apply for a loan against that property. However, if there are more than one owners of your property, then all of them have to collectively apply for the loan.
Additionally, if you own a plot of land, you can use it to avail a loan against property too. The only thing that you should keep in mind is that the title of the property deed should be in your name. The bank or the lending institution should have a clear idea about the ownership of the property.
How will financial institutions evaluate the property?


When you apply for a loan against property, lending institutions will send an appraiser to evaluate the market value of your home or plot. Typically, banks and NBFCs will only sanction a certain percentage of the total cost of your property, which is usually 40 to 60 percent. So, if the market value of your house stands at Rs.1 crore, then the maximum loan that you can avail would be Rs.40 to 60 lakhs approximately.

However, financiers will also evaluate the age of your property and its condition before quoting a final figure. Also, make sure that your property is free from any previous liens and is completely under the subjugation of its legal owners to avoid cancellation of your loan application.

What are your Chances of Getting a Loan Against Property?

Usually, if you’ve a property that is good enough to serve as a collateral, you’ll be able to secure a loan against it. But, there are certain other things that play an important role in the whole procedure.
As mentioned earlier, the lending authorities will evaluate your property and only after they’re satisfied with its eligibility, will they arrive at a loan figure. But, apart from this, your financial standing, employment status, age, and CIBIL score also play a significant role.

Most lenders prefer that the borrower pays off the debt while still being employed, which is why the maximum age for loan maturity for salaried and self-employed individuals is set at 60 years (retirement age in India) and 70 years respectively.

Your CIBIL score will also be taken into account before the loan is sanctioned. The lender will evaluate your past repayment track record and if you’ve ever been a defaulter, your chances of getting a loan would be affected. So, make sure that you’ve a good credit score before approaching the lending institutions.


What are the Documents Required to Secure This Loan?

Once the property has been evaluated, the lenders will ask for a variety of documents like PAN card, voter id card or passport, proof of residence, electricity or telephone bill, and ration card (if any). If you’re self-employed, you’ll need to produce a certified financial statement, which would illustrate your economic status.

On the other hand, if you’re salaried, you’ll need to produce the income statement for the last three years, which means you should be at least 24 years old at the time of applying. Your net income and expenditure will be taken into account before the lenders sanction the loan. So, if you’re paying EMIs for a car loan, then that amount will be deducted from your net income. Hence, the best way to raise your eligibility is to clear off all your previous debts.

What are the Advantages of Taking a Loan Against Property?

A loan against property is known to be one of the cheapest retail loans available in the Indian market. Why? Because this is a secured loan and the lender has conditional ownership over your property until you repay the loan. Hence, you will be able to claim a higher loan amount, unlike personal loans where the maximum limit is quite low.

Also, unlike a home loan, you can mortgage your property for any reason. So, if you’re planning to send your kid abroad for higher education or want to renovate your house, you can use the loan money to fulfil this purpose.
The best thing about a mortgage loan is the lower rate of interest, which is typically between 11 to 15 percent across most banks and NBFCs in India.


How Much EMI do you Need to pay?

Although banks and NBFCs will evaluate your eligibility for the loan, it’ll be better if you’ve an idea about the EMI amount that you need to pay. This will help you better plan your finances during the loan tenure.

EMI is the monthly amount that you’ll be repaying to the lender and it’s calculated on the basis of three factors, namely principal or loan amount, the rate of interest, and loan tenure.
The formula that most lenders use to calculate your EMI amount is:
E= P.r.(1+r)n/ { (1+r)n-1}
Where, 
E=EMI,
P=Principal loan amount
r= rate of interest
n= loan tenure
However, there’s no need to confounded by the mathematical jargon as most financial institutions have an online property loan calculator which you can use to calculate the EMI amount.

What Else Should you Know about a Loan Against Property?

If you’re a salaried individual, then you won’t be able to get a tax rebate for this loan. But, if you’re a businessman and if you can prove that the loan was secured to improve your business venture, then you can claim a tax deduction on the interest levied on the loan amount. Also, if you want a smaller loan amount and have the resources to repay it quickly, then there’s no point in taking a mortgage loan. It’s better to opt for a personal loan as the procedure is fast and doesn’t require a collateral.
Taking a loan against property is definitely one of the best options that you have in the current financial market. However, before you get into such an agreement, make sure that you’ve the capability to repay it, to avoid foreclosure of your property by the lending institution.

2 comments:

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