6 Points To Keep In Mind Before Getting A Loan Against Property

Loans against property are an ideal financing solution when you are looking for a substantial amount of funds. The tenors are also long which makes repayments hassle-free. Along with that, the low interest rates also make the EMIs affordable.

To elaborate on what is a loan against property, it is a type of secured loan provided against collateral like a residential or commercial property. This collateral remains mortgaged with the lender until you have repaid the loan in full.

Lenders approve and sanction these loans quickly thanks to minimal terms and conditions you have to abide by.

Some of the points you need to keep in mind when applying for a loan against property:

1. The Amount You Avail Depends On The Property Value

Lenders will determine the loan amount you are eligible for based on the market value of your house. Now, financial institutions only provide a discounted amount of your property price as the loan.

As per the RBI, you can avail up to 90% of your property value provided the loan is under Rs. 30 Lakh. This ratio between the market value of your house and the loan amount is known as loan to value or LTV.

Usually, lenders will charge a high interest rate when the LTV increases as it makes the loan riskier and vice versa.

2. The Repayment Tenor Can Stretch Two Decades

Loans against property have repayment tenors that can go up to 20 years to accommodate the large amount.

Longer tenors also make the EMIs cheaper. However, it will increase the total payable interest.

For example, say you have a loan of Rs. 20 Lakh with 11% rate of interest. The EMIs and total interest payable for a 10-year tenor is Rs. 27,550 and Rs. 13 Lakh respectively. These will become Rs. 22,732 and Rs. 20 Lakh if the tenor becomes 15 years.

3. You Have To Provide Several Documents

The mandatory documents required for loan against property are –

• KYC documents (Aadhaar, PAN, etc.)
• Address proof (latest electricity bill, any KYC with the permanent address, etc.)
• Bank account statements of the previous 3 months
• Documents of the property to be mortgaged

Salaried individuals have to provide latest salary slips and income tax returns in addition to the above documents.

4. You Can Use The Loan For Any Purpose

Loans against property are similar to personal loans as both have zero end-use restrictions. You can utilise the funds for any purpose.

NBFCs like Bajaj Finserv provide Loans Against Property up to Rs. 3.5 Crore which can help you address numerous financial gaps.

5. There Are Two Types Of Rate Of Interest

You can choose between a fixed or floating interest rate when applying for a loan against property. While fixed interest rates remain stable throughout the loan repayment, floating rate of interest fluctuates depending on market conditions.

6. You Have To Pay Various Charges With The Loan

Some of the charges you have to pay:

• Processing Fees – Charged to cover property checks, credit checks, etc. Deducted from the loan amount before disbursal.
• Penal interest – Charged when you fail to pay EMIs.
• EMI bounce Charges – Levied when your cheque for EMI becomes dishonoured.
• Statement Charges – Charged when lenders send a hard copy of your loan statement to your home.
• Foreclosure Charges – Levied when you foreclose the loan before the tenor ends.
• Part pre-payment Charges – Levied when you part pre-pay a portion of your loan.

Do note that you don’t have to pay foreclosure and part pre-payment charges if you opt for floating interest rates.

Make sure you know the things to avoid when you avail a loan against property. Now that you know what is a loan against property is, compare the interest rates and pick the right lender.