The loan against property market of India is expected to grow at a CAGR of 14% in value terms to reach $857.87 billion by the financial year of 2026. The popularity of this credit instrument can be attributed to its multitude of borrower-friendly features.
Nevertheless, before taking this mortgaged loan, individuals must be aware of its crucial aspects.
5 points to remember before taking a loan against property
A LAP is typically a long-term financial commitment; thus, before getting involved, one must consider the following points to make an informed decision:
Compare interest rates
Individuals must compare applicable loan agains propery interest rate across different financial institutions. Lenders assess the credit profile of applicants before determining this rate. For example, they check intending borrowers’ CIBIL score and monthly income to understand their loan repayment capability. If this capacity is higher, individuals can get loans at lower interest rates.
So, individuals can approach multiple lenders to know at what interest rate they are willing to sanction the credit advance. In this way, they can get the most suitable lender for themselves.
Know the processing fees and all other charges
Lending institutions take one-time processing fees after approving the LAP application form. This charge ranges between 1-3%. However, other than these fees, lenders may include additional hidden charges like legal assessment fees and administration fees.
Additionally, borrowers may be liable to pay penalties for their prepayment, foreclosure, repayment delay, balance transfer etc. So, they must stay aware of all charges for loans against the property before selecting a lending institution.
Check loan tenor using a loan against property calculator
Loan tenor is also one of the most crucial factors that individuals must be careful of. Most lending institutions provide a tenor for up to 20 years on loan against property. However, a longer duration of repayment increases the amount of interest outgo.
Therefore, individuals should prefer a shorter repayment period to reduce interest components. However, a lower tenor increases the EMI amount. Willing borrowers can know how the applicable EMI changes according to loan tenor using a LAP EMI calculator.
Understand property value
Lenders give the LAP against collateral. They appraise mortgaged properties of applicants and sanction a percentage of those estates’ fair market value. This percentage is known as LTV (Loan to Value) ratio which is usually around 50-75%.
So, individuals must know the current market price of their properties to gauge the loan amount they can get. Further, they also need to compare the LTV ratio of various lenders to get the highest amount of finance.
Know eligibility criteria
Borrowers also need to know whether they meet the eligibility requirements before applying for a loan against property. This may be different across the several lenders operating in India. However, some common factors of this are mentioned below:
Citizenship: Individuals have to be Indians
Age: 25-70 years
Employment status: Both self-employed and salaried people can take LAP.
CIBIL score: Above 750
Furthermore, applicants also need to know a step-by-step guide to apply for a loan against property to get this advanced credit.
Apart from this, lenders help their customers with pre-approved offers on products like home loans and LAPs. This streamlines the loan application process, and consequently, borrowers can save their time. Individuals should provide information like their names and contact details to check their pre-approved offers.
Thus, individuals can make a more careful financial decision by considering these factors while taking a loan against property. In addition, it will help them stay aware of their future financial obligations, and make a sound borrowing decision.