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Important Terms To Understand Before Applying For A Loan Against Property

ssAccording to the reports from the Economic Times, the decision of RBI to keep the repo rate unchanged by 4% in the last year was attributed to the demand for loan against the property of 20%. The lending rates depend on the fluctuation of repo rates in both the home loan and property loan segments. Apart from this, a loan against property, also known as a property loan, is popular among intending borrowers due to its multipurpose nature and substantial loan amount.

To raise a sizeable loan amount, borrowers need to pledge any commercial or residential property as collateral. Nonetheless, if one is planning to apply for property loan, here are some of the crucial factors to keep in mind.

Important factors to consider before applying for a loan against property

Here are a some of the vital aspects that one should be mindful of before applying for a loan against property:

  • Loan amount

Before planning to apply for a property loan, it is essential to consider the loan amount. In such a credit option, the loan amount primarily depends on market value of mortgaged property. Usually, based on the property valuation and lender’s loan terms, one can acquire 40%-75% of loan amount. Therefore, if you are seeking a substantial loan amount, it is better to research and compare the lenders in the market and find a suitable lender offering the highest loan amount for the property.

  • Interest rate applied on loan amount

The interest rate levied on different types of loan against property will rely on multiple factors involving loan amount, credit history, income, tenor etc. and can also differ from one financial institution to another. Therefore, when acquiring a property loan, one must ensure obtaining the most affordable interest rate for the mortgaged asset. In this regard, one must conduct thorough research and compare the lending rates in the financial market to settle for the best one against the loan.

  • Loan repayment tenor

Usually, reputed financial institutions extend repayment tenors of up to 18 years. However, while selecting the loan tenor, one must remember that with a longer tenor, one can ensure affordable EMIs, but the borrowing cost will increase. This is because the interest rates are evaluated in a compounding process, so choosing an extending tenor will lead individuals to pay extra in the long run. In this regard, individuals can take the help of a loan against property EMI calculator to determine the monthly obligations and overall interest outgo throughout the repayment period. This online tool is available on most financial lenders’ websites, and one can use it beforehand to determine the EMI and plan the finances accordingly.

  • Eligibility parameters and documentation

Before applying for any credit facility, borrowers need to meet certain qualifying parameters to obtain the preferred loan amount. Moreover, to ensure prompt and hassle-free approval, individuals must know about the loan against property eligibility criteria. Reputed lending institutions extend property loans to both salaried and self-employed individuals. These financial lenders set certain eligibility parameters involving age, income, employment status etc. 

Apart from meeting eligibility parameters, borrowers need to produce certain documents to substantiate their property ownership. One needs to ensure that all necessary information specified in the documents is verified and authentic. Some of the basic documents to acquire a loan against property include:

  • KYC documents
  • Address proof
  • Property ownership documents
  • Financial statement for last 6 months
  • IT returns 
  • Business establishment certificate etc.
  • Tax benefits

Before applying for any credit, it is essential to check whether it extends tax benefits or not. For example, in a loan against property, borrowers must know that it does not include tax deductions. However, individuals can avail of a loan against property tax benefit based on the usage of the funds. For example, if individuals avail funds for financing a new residence, the paid interest will be eligible for tax deductions under Section 24 (B) and can avail a benefit of up to Rs.2 lakh. Additionally, individuals can gain a deduction under Section 37 (1) if the funds are spent on business expenses and not on personal expenses.

Apart from extending high-value property loans at an affordable interest rate, borrowers can also avail of pre-approved offers on a wide range of financial products such as loans against property, home loans etc. By availing of these offers, existing borrowers can bypass the hassle of documentation and expedite loaning process. Therefore, one can check his/her pre-approved offer by mentioning the name and contact details.

Therefore, to sum it up, considering these above-mentioned aspects before planning to apply for a property loans will allow prospective borrowers to select the right loan based on their requirements and financial standing. However, one must not forget to factor in processing and other additional charges that accompany a credit option. Such charges can bring significant change in the borrowing cost and impact one’s repayment ability in the long run.

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