3 Points To Focus On Before Opting For A Loan Against Property

Mortgaging your assets, especially a one that is much appreciated is a great way to meet your financial requirements. You receive the funds without actually selling off your assets and also you pay an interest rate that is much lower than an unsecured loan. One of the most popular asset-backed loan category is a loan against property or a LAP. In a loan against property, your residential property, commercial property or even a plot of land can be treated as a mortgage by the lender. Like personal loans, the biggest advantage of a LAP is that there is no restriction on the end use of the loan proceeds.

Besides the equated monthly instalment (EMI) mode, the loan against property is also available in the form of an overdraft (OD) facility. This feature mostly benefits the self-employed as the businesses can draw funds according to their fluctuating capital requirements and the interest is charged on the funds that are utilised. However, despite the numerous advantages, these loans may not be the choice for everyone. Here below are a few points to focus on before opting for a loan against property.

Interest rate: A low rate of interest is possibly the most important selling point of a loan against property. In most cases, the interest rate ranges anywhere between 10 to 14%. However, if you are looking forward to a home renovation, financing your home purchase or even your child’s education, a home loan or an education loan may work out to be a better and cheaper option. You may opt for a loan against property only if you are unable to avail a purpose-specific loan such as a home loan or an education loan.

Loan Tenure: A tenure of a loan against property can go up to as high as 15 years, giving it an edge over other short-tenured loans such as a personal loan or a car loan. A longer loan tenure may translate into a lower EMI, which then increases your affordability of the EMI. For example, if you assume that your monthly income is Rs. 70,000 and you are availing a loan of Rs. 25 lakh at 12.5% per annum for a five-year tenure, your EMI will stand at Rs. 56,245. However, if you increase the tenure to 15 years, your EMI will reduce to Rs. 30,813. But also, you must keep in mind that a longer tenure will result in a higher interest rate payment.

Longer Processing Time: As your loan against property will be sanctioned by your property, and your loan against property eligibility, the housing finance company or your lender will require time to verify all the property related documents and also carry out a technical appraisal of the property before they disburse your loan amount. Besides these, the housing finance company or the lender will also ask for your income proof to judge your capacity for the loan repayment. All of these analyses may require up to approximately 30 days. Thus, opting for a LAP is recommended only if your financial requirement is not urgent.

Besides these, there are numerous more points to focus on before opting for a loan against property. However, these are the ones that are of utmost importance.