The property loan or loan against property is a long-term loan that stretches up to 10-15 years, giving the borrowers sufficient to repay the loan easily. Read on to know more about things to remember when you apply for LAP.
In India, it is a common practice among people to sell their property during an emergency to get the necessary funds. But, selling the property means loss of ownership of the asset. So, if you need a large amount of money, instead of selling your property, be it a residential or a commercial property, you can mortgage the same with a lender and avail property loan.
A mortgage loan or property loan is an excellent alternative to applying for a personal loan; it has a much lower interest rate, and you can get the loan for a longer duration. But, just like any other loan, you must know the nitty-gritty of the property loan.
Listed below are a few important things you must consider while applying for a mortgage loan.
The lenders in India generally offer mortgage loans for 10 to 15 years, which is much longer than other unsecured options like personal loans that have a maximum duration of 5 years. Since the term is long, the EMI is comparatively much lesser and affordable. So, when you are applying for a property loan, make sure you opt for a loan with a longer duration so that you can easily repay the EMI.
Additionally, if you have a surplus amount, you can consider paying a higher EMI or prepay a part of the loan amount and close the loan account sooner. But, check if the lender has any prepayment charges.
The maximum loan amount you can get depends on the lenders’ assessment of the property’s value that you wish to pledge. Generally, most lenders approve a maximum of 50% of the property’s value. While evaluating the property, the lenders consider several factors, including the property’s location, property age, type of property, etc. Once the lender evaluates the property, the sanction amount is decided based on your repayment capacity, income, and credit score.
To ensure that you get the right evaluation of the property, it is better to get your property reviewed by a third-party agency to get a fair idea about the property’s current value. This will help you be in a better position to negotiate with the lender while applying for a loan.
The importance of interest while applying for a loan cannot be undermined; it has a direct impact on the EMI and the repayment. Since a mortgage loan is a secured loan, the interest rate is much lower than that of the unsecured loans like personal loan or credit card loan. Generally, the lenders decide the interest rate based on the type of property pledged and the amount borrowed.
For instance, if the property you pledge is a self-occupied residential property, apply it up to Rs. 49 lakhs, the interest rate would be around 9.30% to 10.30%. If you pledge a commercial property, the interest will range between 9.80% to 11.40%.
Restrictions on usage of funds
Most lenders in India do not impose any restrictions on the end usage of the loan amount. You can use the amount for any purpose you want, including paying medical bills, children’s education fees, business expansion, buying new machinery, taking an international vacation, etc. However, lenders restrict fund usage for illegal activities like gambling. So, when you apply for a mortgage loan, make sure that the lender does not limit the fund usage.
Take advantage of the tax benefits
Several borrowers have no clue about the tax benefits available mortgage loans. The tax benefits you can avail of depends on the fund usage. For instance, if you use the funds for buying a second home, the interest paid can be claimed under Section 24(b) of the Income Tax Act. You can claim a tax benefit up to Rs. 2 lakhs per annum.
Finally, before you sign the loan documents, make sure that you read the terms and conditions carefully to avoid any legal hassles later.