Loan against property is the loan that can be availed by mortgaging property. In other words, you use a property that is owned by you as collateral with a lending institution and take a loan against the market value of the property. Mortgaging a property is considered a better option by many as selling means losing it forever.
These loans get easy approvals as the lender exercises the legal rights to the mortgaged property and in the event of any losses he can auction or sell off the property to recover any losses.
What is a loan against property?
Most lending institutions offer this loan, and here are some of its advantages.
1. Protection of ownership of the mortgaged property
2. Quick and Easy access to required funds
3. Payment made in easy installments
4. High-value loans required becomes affordable
5. Repayment tenure up to 30 years
6. Requires very less documentation- Identity Proof, Salary Slips for last 3 months, Address proof, Income Tax Return Statement, Documents of property to be mortgaged
7. Quick disbursal of funds
8. Secured loans reduce the interest costs
9. Low Prepayment charges
The loan enables you to get the funds you need while protecting the ownership of the property.
Factors to consider while availing loans against property
While taking the loan, here are some of the factors for you to consider.
1. The Loan Amount
a). The amount of the loan would depend on the value of the mortgaged property.
b). Usually, the amount given as a loan is up to 70% of the valuation of the mortgaged property.
2. Interest Rate
a). Loan against property interest rates is low when compared to personal loans, i.e. around 10-12%
b). It is a secured loan that is backed by a mortgage.
3. No restrictions on usage
a). Loans against property can be used for personal and professional purposes, just like personal loans.
b). You can renovate your house, fund your business, arrange a marriage function or do anything which can be done with a personal loan.
4. Tax benefits
a). Various tax benefits are available with a loan against property. The tax benefits would depend on the end usage of the money borrowed.
b). Under section 37(1), tax benefits are available on the interest paid.
c). The interest cost and processing fee can be claimed as business expenses in case the money has been used for business purposes.
5. Processing fee and other charges
a). The amount charged as processing cost is up to 2% of the loan amount, which is quite low.
b). Check out the other charges and ask the lender for the details before signing up for a loan against property.
a). Loan against property offers a longer repayment tenure of up to 2-30 years.
b). The long tenure gives the borrower sufficient time to pay back his loans and ensures that the EMIs are affordable.
Also Read: How a Private Equity Firm Decides on an Acquisition
Remember, you need to be the owner of the property to get a loan, and you will be required to submit title deeds with the lender for the loan duration. Loan against property comes with great benefits, but you must check with your lender and get enough information on the factors mentioned above before making a decision.