Sometimes, despite careful financial planning, we may be faced with certain situations that demand substantial cash reserves. These may range from addressing various business needs to personal ones like covering higher education expenses, medical costs or other emergencies. During such trying times, a loan against property (LAP) can provide viable financing solutions. Also known as property loan or house mortgage loan, it allows homeowners to leverage their property or land for large funds quickly without loss of property ownership. Due to its secured nature, loan against property interest rate is lower than other unsecured credit options with simple eligibility criteria.
Here we look at demystifying property loan interest rates and other key facets that can fetch you attractive rates.
Vital Considerations to Bear in Mind
Ease of approval can sometimes make borrowers overlook several crucial aspects of a loan against property. These include:
Compare Interest Rates of Different Lenders
Loan against property interest rates may vary widely among lending institutions depending on credit risk assessment of an applicant’s credit profile. The rates could also differ according to the loan amount and repayment tenor that you opt for. Hence, individuals who wish to take up a property loan must first spend adequate time researching and comparing Loan Against Property interest rate from other lenders. You may begin by discussing the loan requirements with your existing bank or lender. Later, you can visit the branch offices of other lenders located in your city or you could just check all the information on their official websites.
You may even look up online financial markets for consolidated offers and updated rates of different banks and lending companies. It is also essential to factor in the loan disbursal time which could take 2 to 3 weeks. Choose a lender who extends high loan amounts at competitive rates with favourable repayment terms. This will help in maintaining credit costs within a reasonable range.
Consider Associated Fees and Charges
Apart from the applicable interest rate, there may be other fees and charges on a property loan that can add to your debt. For instance, lenders usually levy 1% to 2% of the loan amount as processing charges while some may even extend waivers. For high-value property loans, this could mean a sizeable expense. As per RBI guidelines, lenders cannot levy prepayment fees on floating interest-rate loans. However, borrowers servicing loans at fixed interest rates may be charged prepayment or foreclosure fees.
All these charges should be taken into account when calculating loan affordability. Ensure you verify them beforehand and try to opt for a lender who can offer nil to nominal charges.
Align the Tenor with Your Repayment Potential
The repayment tenor you select will determine the payable EMIs and overall interest outgo. A longer tenor may result in reduced EMI but increase the interest amount. A shorter tenor does the opposite as it gives you higher EMIs but limits the payable interest.
House mortgage loans could stretch up to 30 years giving you ample time to repay the loan. Plan the tenor such that it does not affect your regular expenses and budget. With greater monetary resources, you can consider a shorter tenor. Otherwise, stick to a longer tenor that gives you manageable EMIs. You can prepay the loan on a regular basis whenever you have surplus funds to bring down the principal and interest outgo and also pay off the loan earlier.
Make Use of Loan Against Property Calculators
Borrowers may access a loan against property EMI calculator to choose the optimal repayment tenor and EMI. It is simple to use and requires the input of just three variables:
- Loan amount that you wish to borrow
- Property loan interest rate charged by the lender
- Your preferred loan tenor
You can tailor the loan by adjusting the numbers until you arrive at figures of your choice and financial comfort.
Have an Exigency Fund
Emergencies like illness, job loss, accidents, etc. can happen anytime hampering income flow and EMI repayments. Ongoing investments might help tide over such crises but they could leave you cash-strapped for future necessities. Therefore, borrowers should create a contingency fund for their EMIs to manage the loan, which should see them through at least 6 months, without dipping into their savings or investments. They must also focus on sound investments like fixed deposits or other liquid instruments that generate higher returns.
Ways to Reduce Property Loan Interest Rate
Mentioned here are some key points borrowers should remember to lower their loan against property interest rate:
- Look out for promotional offers from lenders; they usually extend special interest rates during festive seasons.
- Select loan amounts that you actually need and can conveniently repay within the stipulated tenor.
- Find out the applicable interest rate for different loan slabs. For example, the interest rate for loans in the range of Rs. 30 lakh may be lower than a Rs. 20 lakh loan.
- Choose the tenor as per your loan amount and interest rate.
- Avoid applying with various lenders as each loan rejection will hurt your CIBIL score. Lenders are reluctant to accept loan requests from borrowers with poor credit scores (a credit score of 750 or above is considered ideal). And even if they do, the interest rates may be higher with stricter terms, which will then translate into a costlier loan.
Loan Against Property Eligibility Criteria
The moment they receive an application, lenders will first assess the applicant’s eligibility for the loan before approving or rejecting the loan request. Their evaluation will encompass a number of factors such as:
- Applicant’s age
- Nature of employment
- Credit history
- Value and type of the property to be pledged
Documents Required for Loan Against Property
The documentation requirements for property loans may vary among lenders. It is advisable to confirm this in advance so that you can keep them in order before applying. The standard documents that lenders ask for are:
- Identity and age proof – Aadhar card, PAN card, passport, etc.
- Residence proof – Driving license, voter ID, Aadhar card, etc.
- Form 16
- Bank statement
- Income tax return certificate
- Proof of income
- Property document – Registration certificate, sale deed, building plan, property tax receipt
A loan against property can be availed against any residential, commercial or industrial property or land parcel; provided you own it and hold valid documents that prove clear title and ownership free from legal disputes. If the property is jointly owned, both owners can apply for the loan together. This may improve your Loan Against Property eligibility and help you receive higher loan amounts at lower loan against property interest rates.