Fri. Aug 12th, 2022

A loan against property is a financial product that allows individuals to pledge their immovable assets (residential or commercial) to financial institutions and get substantial funds against them. This credit facility is popular among borrowers due to no end-use restriction. It means borrowers can use the loan amount to fund various expenses such as weddings, higher education, business expansion, and medical bills.

Individuals must know about certain essential things to maximise the benefits of a property loan. The following section discusses important aspects of a loan against the property.

Things to keep in mind before opting for a loan against property

Individuals should keep the following things in mind before applying for a loan against property.

  • Interest rate and charges tied with loan

Interest rate is one of the essential components of a loan against property that every loan applicant must be aware of. The rate of interest on loan against property depends on various factors such as credit history, income, loan amount, and tenor and can also vary from one lender to another. 

A loan against a property usually comes with a reduced interest rate due to its secured nature. This helps borrowers to assess the overall cost of borrowing beforehand. Subsequently, borrowers must tally the interest rates offered by various financial institutions and settle for the best rate. In addition, they must know processing charges, services charges (if any), statutory charges, stamp duty (state-wise), pre-payment charges etc. 

The knowledge and practice are necessary because slight changes in the interest rate or rates can increase the cost of borrowing significantly. 

  • Repayment tenor

Repayment tenor is another important factor of a loan against property. Repayment tenor refers to the length of time a borrower takes to repay the loan amount along with interest. 

In the case of a property loan, most lending institutions offer this financial product at a flexible repayment tenor that can stretch up to 15 years. Individuals can opt for longer repayment tenors and lower monthly payments, i.e. EMIs and vice versa.

However, borrowers must remember that a longer tenor may lower EMIs but can increase total interest outgo. Hence, they must evaluate their financial standing and opt for a suitable EMI without burdening their pocket. To determine the EMI, individuals can use a loan against property EMI calculator and choose the amount that suits them best.

  • Tax benefits

Before applying for a property loan, individuals must know if any tax deductions are available. Here, borrowers must know that a loan against property is not tax-deductible. However, individuals can gain tax benefits depending on the usage of the loan amount. For instance, they can enjoy a tax deduction of up to 2 lakhs on interest payments under Section 24 (B) if individuals use the loan amount for funding a residential home.

Further, borrowers can gain tax deductions under Section 37 (1) if the loan amount is used for business expenses and not for personal uses. Knowing these tax benefits helps individuals evaluate the amount they can save on tax payments. 

  • Eligibility criteria

To ensure fast and hassle-free approval of a loan against property, individuals must know the eligibility criteria of this financial product. Lending institutions offer property loans to both salaried and self-employed individuals. 

However, these institutions set different eligibility parameters for individuals with different employment statuses. For instance, salaried individuals aged between 28 and 58 years can apply for this loan. In addition, they must work in a private or public sector company or a multinational organisation. 

On the other hand, self-employed individuals applying for a property loan must be between 25 and 70 years of age. They must provide proof of steady income from their business.

  • Documents requirement

The documents required for a property loan vary depending on the employment status. Salaried individuals must gather ID proof, address proof, PAN card/ or Form 60, bank account statements for the last 3 months, latest salary slips, and IT returns. Further, they must provide a copy of the documents of the property to be mortgaged, Title documents as asked by the legal team. 

On the other hand, self-employed individuals must submit address proof, ID proof, PAN card or Form 60, primary bank account statements of the last 6 months, and income documents, such as ITR or Financial. 

Along with these, they have to furnish a copy of the documents of the property to be mortgaged, Title documents. Please note that in both cases, lending institutions can ask for more documents if required.  

  • Value of the property

As stated in the introductory paragraph, a loan against property is offered when borrowers pledge their immovable asset to a lending institution as collateral. The lending institution then assesses the value of the property on the basis of age, location and amenities offered to decide the loan amount. 

Individuals can get up to 75% of their property value as a loan amount. Hence, it is essential for borrowers to know the value of the property and the loan amount they are eligible for. 

To get the best deal, property owners must conduct market research and select the perfect lender. Renowned lending institutions provide high-value loans against property at competitive rates. 

These financial institutions also provide a pre-approved offer to make the loan availing experience hassle-free. These offers are also available for other financial products such as home loans, loans against property etc. Individuals can check their pre-approved offers by entering names and contact details.   Now that individuals know the crucial things about a loan against propertythey can avail the same without hiccups and make the most of this financial product. 

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