Things to keep in Mind Before Taking a Loan Against Property

To avail funding that a traditional personal loan cannot offer, a loan against property is the ideal alternative. It is a secured loan that can be used without any restriction.  

Additionally, the loan against property interest rate is lower with longer tenors in comparison to unsecured loans. However, in order to avail the benefits of this loan, certain factors are to be considered.

Points to keep in mind before taking a mortgage loan –

1. Eligibility criteria – It is essential to check whether you qualify to avail such a loan. Salaried applicants between 33 and 58 years employed with an MNC or public/private Company can apply successfully. Self-employed individuals between 25 and 70 years with a regular source of income are qualified to avail a loan against property.

In addition, make sure to provide the required documents such as –

• Photocopies of the property to be mortgaged.
• KYC documents (PAN or Aadhaar).
• Address proof (Latest electricity bill, telephone bill, post-paid mobile bill, municipality tax receipt, credit card statement, any KYC document with your permanent address, etc.).
• Income tax returns.
• Bank account statement.

2. Loan to value – The loan to value (LTV) is the ratio of between the loan and current market value of the asset to be mortgaged.

Higher LTV makes it riskier for a lender to finance the loan. They may not be able to avail the full cost of the loan when liquidating the property in case you default. In such cases, they charge high loan against property interest rate.

Contrarily, low LTV reduces the rate of interest and makes your EMI affordable; thus, increasing the chances of approval.

Hence, apply for a reasonable loan amount that will keep your LTV low and provide an affordable interest rate.

The market value of the asset depends on the following factors –

• Condition of the house – Financial institutions disburse property loan depending on the situation of your house. Well-maintained properties will fetch higher value.
• Location – Along with the condition of a place, prominence also helps in receiving a higher loan amount.

3. Tenor – Loan against property tenor can stretch up to 20 years. The benefit of opting for longer tenor is affordable EMI. However, it should be noted that larger repayment tenor increases the cost of loan – principal + interest, than shorter ones.

For instance, you have undertaken a loan of Rs.50 lakh at 11% loan against property interest rate. The EMIs and cost of loan will be Rs.51,000 (approx.) and Rs. 1.23 crore (approx.), respectively if you select a 20-years tenor. Similarly, your EMIs and cost of loan will be Rs. 56,000 (approx.) and Rs. 1.02 crore (approx.) respectively if you choose a 15-years tenor.

Hence, determine the ideal tenor along with total interest payable using the property loan EMI calculator. 

HFCs like Bajaj Housing Finance Limited provide flexible tenor ranging from 2 to 20 years at affordable interest rates as per the convenience of the customer. 

In addition, they provide pre-approved offers that help in hassle-free loan disbursal by simplifying the process. These pre-approved offers are available on both secured and unsecured loans like housing loans, personal loans, business loans, as well as on numerous other financial products. You can check your pre-approved offers by sharing your name and phone number online.

4. Tax benefit – You can claim income tax exemption under the following sections-

• Section 24(b) – Claim exemptions up to Rs.30,000 on the interest paid if the funds are used for home renovation.
• Section 80E – Avail tax benefits when financing your child’s education through a loan against property. 

5. Credit score – Credit score may not necessarily be important criteria to avail a loan against property. However, your chances of approval increase if you have a minimum CIBIL score of 750. A higher credit score will also save time during the loan against the property process.

Thereby, ensure that you have a detailed knowledge about the factors before applying for a loan against property. Compare the features and benefits provided by different lenders before opting for such a loan. In case the loan against property interest rate provided is comparatively better than your present lender, opt for a balance transfer facility.