A loan against property is a secured loan provided by financial institutions against commercial or residential property. Compared to other loans such as business or personal loans, a loan against property is generally offered at a lower interest rate. An individual, irrespective of whether they are self-employed or salaried, can apply for loan against property if they have a pre-owned property. The principal amount of such loans is also generally higher than other loans.
Now, a loan against property can be used for multiple purposes. A salaried individual could suddenly face a medical emergency, or a businessman might want to expand their business and seek financial assistance. Whatever the reason, a loan against property can be used to cover the financial gap. This loan helps borrowers from using up their hard-earned savings and easily repay through low-cost monthly instalments. Such loans include tenures usually lasting up to 15 to 20 years.
Before going for this loan, there are certain things that you need to keep in mind:
- Get the loan covered by insurance
When you are taking a long-term loan such as a mortgage loan, it is advisable to get covered under insurance. You do not want such a debt to fall on family members in the event of your unfortunate demise. Getting insurance for the borrowed amount can ensure that your family members do not face any financial difficulties.
- Try and opt for a short loan tenure
This is something that most borrowers choose not to do. The reason for this is because opting for a longer tenure means that the monthly instalments are smaller, which are easier to pay. However, opting for a short repayment tenure can help save money on interest payments. By cutting down the number of EMIs, you are also restricting the interest from adding up with each instalment.
- Keep your repayment capacity in mind
Do not make the mistake of only considering your monthly income while calculating the EMI expenses. It is very important to also account for all the existing debt and current monthly expenses while deciding your repayment capacity. Also, make use of a loan against property EMI calculator, which will help you decide whether the EMIs of a loan plan are affordable, or not.
- Analyse the LTV ratio provided by the lender
Most lenders provide a high LTV (Loan to Value) ratio of 90%, which sets the down payment at 10%. However, if the loan is above a certain amount, some lenders will not go beyond 80%, which means you would have to pay a 20% down payment. This is why it is important for you to carefully analyse the LTV ratio that is offered by the lender.
Now that you have gone through these instructions, make sure to choose a lender that is offering a good loan plan. Also, it is better to check with the lender regarding their requirements of the loan against property documents. This will help you avoid wasting time in the documentation process.