Taking loan against your property or assets is known as mortgaging. Mortgaging on your important asset is a great way to meet your financial needs. You get funds from the asset, and you don’t have to sell it to someone else, you have to pay interest. With a lot of loan offering schemes and companies coming into the picture, it is common to fall prey to the attractive benefits they might offer, but when dealing with property collateral loans, there are certain things to keep in mind.
The mortgage has categories, and one such category is a loan against property. The property can be rented to someone or used by the owner himself. And for a loan against property, there is an overdraft facility which is similar to EMI mode. Anyway, every method has its advantage and disadvantage. Thus, you must keep some point while opting for the loan against property.
The points are:
Interest Rate: – One of the highlighting aspects of loan against property is the low rate of interest. The percentage of interest can range between 108.80%-14%, usually. But, if you are looking for other financial aid like home renovation, child’s education, home loan or education loan, they might turn out to be cheaper options. Go for the loan against property, only if you are finding it difficult to avail a purpose-specific loan like education loan.
Amount of loan: – The loan amount usually ranges between 40% to 750% of your property’s market value in loan against property. The exact amount of loan can move up to crore of rupees. Go for a loan against the property if you have a property of high value and the upper limit on other loans is not enough to meet your needs. Loan against property is not suggested to take for small loan amounts because keeping your property in someone else hands for a small amount is not sensible.
Tenure: – The tenure of loan against property can go as up as 15 years and thus the EMIs of longer tenure is sure to be low. It is an advantage of loan against properties over small loans. It also makes it easy for middle-class people to afford lower EMIs. But, longer tenure means higher interest payment and pressure.
Tax benefits: – You don’t get tax benefits with LAP. There are tax benefits in loans like education loans which suggest that you can deduct it from your taxable income, but you can’t deduct loan against property from your taxable income. Therefore, prefer education and home loans over loan against properties.
Processing time: – As loan against property is supposed to be sanctioned by your property, the lender takes time to verify every estate related document and get a technical appraisal done before distributing the loan. Plus, the lender will ask for your income proof to make sure that you can pay your loan on time. So, choose LAP only if it is emergency.
Charges: – Loan against properties has processing charges just like other loans. Generally, the fees are up to 1%. There are also additional charges like prepayment charge and penal interest charges. Calculate these charges before opting for a loan against property.
So, in short, go for a loan against property only if the loan amount is high and cheaper credit has been denied.