Today, expanding a business, buying a luxury car, funding a child’s education has become a costly affair. For a person who needs financial resources has a wide range of options available. Banks and NBFCs offer various financing options like personal loans, home loans, auto loans, loan against property (mortgage loan) and many more. Loan against property is rapid;y gaining popularity because it comes with various benefits like higher loan amount, flexible repayment method, longer tenure etc. No matter how popular this loan type is, some people are not aware of the loan against property. Let’s understand how a mortgage loan can help fulfil considerable funding.
What is a loan against property?
Loan against property, also called mortgage loan is a secured loan against residential or commercial property that is not currently being used. The loan amount is decided after evaluating the property, and a person can take a loan for a maximum of 20 years.
Features of mortgage loan:-
- Higher loan amount: A hefty amount of loan can be availed by a borrower because most financial lenders allow a borrower to take a loan for 50%-60% of the property’s market value. There are few banks or NBFCs who offer up to 70% of the market value. For example, if your property is valued for Rs 50,00,000, you can get a mortgage loan for Rs 30,00,000 if banks allow 60% of the property’s market value.
- Flexible option: Mortgage loan comes with flexible options like loan overdraft, extending tenure, repayment option, disbursement on different interval and many more. Remember all these options are not available with all the lenders. For example, Tata Capital comes two repayment option like Standard EMI plan and Step Flexi EMI plan.
- A lower interest rate: Since loan against property is a secured loan where a residential or commercial property is mortgaged. Borrowers will be charged a lower interest restructured loans charge lower interest because the lender does not have to worry about the repayment. After all, if the loan is not repaid, banks will auction the property mortgaged to get the loan amount. The interest rate is influenced by factors like credit history, income, employment history, property type, and work nature. Before applying for a loan, it is advised to compare interest rates offered by different lenders.
- Know the terms and conditions: Read the terms and conditions document very carefully because it has all the details related to processing fees, loan tenure, foreclosure charges, prepayment tenure. Look at the document carefully before sealing the deal.
- Longer tenure: Loan against property’s maximum tenure goes up to 15 years, and some lenders also allow a borrower to have a tenure of 20 years. The longer the tenure, the lower the EMI. EMI and tenure have an indirect relationship; shorter tenure means higher EMI and long tenure means lower EMI.
- Comfortable EMI routine: Mortgage loan is the best choice if you are comfortable paying the higher outstanding loan amount. If you select a shorter tenure, then you will have to pay higher EMI and vice-e-versa. To calculate your EMI use loan against property calculator at MyLoanCare.
- Can serve various needs: Loan against property can be used for various purposes like medical emergency, setting up a business, buying a house, funding education etc. There is no limitation set for the usage of the mortgage loan amount by the bankers.
- Pre-closure: If you want to be debt-free before the tenure ends, you can prepay the loan. Suppose you have opted for a flexible interest rate. In that case, you will have to pay the pre-closure penalty if you have opted for fixed interest rate then you will have to pay foreclosure charges which are different for every lender, but generally it is between 0.25%-1%.
Bottom line: Hence it is proved that loan against property comes with many benefits. It is known that a borrower mortgages a residential or commercial property so if a borrower is unable to repay the loan, then the lender can sell the property and settle the loan. However, a borrower should try to repay the loan and get ownership of their property back. Be wise to take a loan against property, do not let your property go off your hand just put it to fair use.