A loan against property is a facility where you pledge your commercial or residential property as collateral. This secured loan option qualifies you for funding up to 70% of the property value, and the sanction has no end-use restrictions.
This means that you can use it as you see fit. Be it to pay education fees, handle personal expenses, consolidate existing debt, or to expand the business, there are no restrictions. Best of all, since it is a secured loan, you enjoy low interest rates, making it an affordable option.
However, despite these perks, these are a few key elements to this loan that you need to consider. To that end, take a look at the following pointers.
Value of the Property and the Maximum Sanction Offered
Banks will evaluate your property through multiple factors before specifying the details of the appraised property value. Also known as the LTV for your property loan, lenders generally offer up to 70% of the property value.
Some may offer a higher sum, and the LTV for properties is affected by several factors. Some of these are:
This isn’t an exhaustive list of factors and there may be other factors that lenders consider when assessing your loan against property application.
Loan Tenure
In general, the loan against property is a long-term instrument. Meaning, you can get a tenure that ranges up to 20 years, or more in some cases. Do note that the tenure you get will vary based on your profile and certain factors, such as the property type.
In some instances, your relationship with the lender and your credibility as a borrower may come into question too.
In any case, the repayment plans on offer are generally quite flexible. As such, this is among the many advantages of availing this type of loan. In fact, it is one of the many reasons to avail the loan against property balance transfer facility, as the flexible tenures help ensure affordability.
Eligibility Criteria and Documents Required
In general, you can avail this type of a loan if you are a citizen residing resident with an asset to your name. However, these aren’t the only criteria, and here is a table to highlight a few key terms.
Criteria | Particulars |
|---|---|
Age | 21 – 65 years of age |
Nationality | Indian resident |
Employment type | Salaried or Self-Employed |
Credit score | 700 or higher |
Property type | Commercial or residential |
Do note that this list of criteria isn’t exhaustive, and will vary based on the lender. As such, you should check with your lender before applying. This way, you eliminate the possibilities of missing out on crucial loan eligibility information.
While the eligibility terms are key, you need to prove you make the cut by submitting the relevant documentation. Listed below are the documents required for a loan against property.
Similar to the eligibility terms, lenders will require different sets of paperwork to process your loan application. It is important to check these requirements before applying and gather all the documentation before you apply.
Failing to do so can cause delays in loan processing, making it cumbersome and unnecessarily time-consuming.
Interest rate and loan-specific fees and charges
The interest rate is one of the first things you may, and should, consider when opting for a property loan balance transfer. This is because it directly impacts your monthly payments or EMIs. Your EMIs on a loan against property are a vital element because they are a key part of the repayment process.
Failing to keep up with your EMIs puts the pledged asset at risk, and you may even forfeit ownership. As such, it is important to know your EMI outgo before applying, and ensure that you can handle it all through the tenure.
One way to go about this is to know the interest rate applicable on the loan, and use the EMI calculator to determine your EMI accordingly. This will give you an idea of the monthly outgo, and the total interest payable.
Aside from the interest rate, there are other charges applicable too. Here are a few important ones to know.
Fees and charges:
All fees and charges are listed in the welcome brochure at the time of application, so read them carefully.
Tax Benefits
You can also avail of tax benefits on your mortgage loan under section 37(1) of the income tax act 1961 and section 24(B) if you use your loan for business purposes or purchase residential property.
These elements can help you evaluate the value of your loan against property. Although the interest rates may vary for all financial institutes, many elements are the same. In any case, it is best to do your research before pledging your asset as collateral.
You should also assess your requirements before applying for a loan. Do not borrow more than you need, and always prioritise affordability when planning repayment. This way, you get the money you need and can safeguard your assets as well.
Disclaimer: This content is part of a marketing initiative. No TNIE Group journalists were involved in the creation of this content.