Follow These Rules Before Opting for Loan Against Property in 2021
A loan against property (LAP) is one of the most effective methods to secure loans by keeping your property as a mortgage. The interest drawn on LAP is much lower than other personal loans. A loan against property in 2021 is one of the most profitable investments as it charges a minimal interest rate as well as provides insurance security. Further, there is no restriction on end usage: a LAP can be taken for expanding business, meeting marriage or education expenses, investing money in a new venture, refurnishing your house, or any other investment. You can be a self-employed or salaried individual to be eligible for availing of LAP. However, there are few things that you need to consider before availing Loan Against Property to enjoy a seamless repaying process.
Choose a moderate EMI that you can easily pay:
Most of the time, individuals take a loan for expanding business or fulfilling other personal needs. Around 60 to 90 per cent of property value can be availed of as LAP from lenders, subject to certain conditions. However, you must choose the loan amount wisely and take only as much as is required as a very high EMI will affect your repayment capability. As a rule of thumb, your EMI should not exceed 60-65 per cent of your monthly income. Furthermore, consider keeping a certain amount of money aside as an emergency fund, so that you don’t end up paying extra money as default charges.
Keep Emergency Fund:
It is advisable to keep a certain amount of money aside as an emergency fund after you have availed of a loan through LAP. Unfavourable circumstances can occur at any time and if ever you are in a difficult situation, the emergency fund will help in smooth EMI payment. Becoming a defaulter will add to penalty fees and undermine your credit score, leaving you ineligible for any future loans. Also, your property rights could get transferred to your lender if you default in paying your EMI for an extended period. Keeping an emergency fund is a wise decision and it will save you extra expenditure.
Negotiate for Lower Interest Rates:
Compare LAP interest rates across lenders in the market. Various lenders offer different interest rates, subject to their own terms and conditions. It is advisable to seek a financial expert’s advice if you are opting for a larger amount of loan. Also, you can pit against lenders for lower interest rates, this will considerably decrease the interest rate charged against LAP. Comparing prices over financial websites will help you understand the market mood and help you decide the right lender for your mortgage property.
Choose a Shorter Loan Tenor:
The time frame of the loan is one of the main factors that decide the loan interest rate. Opting for a shorter loan tenor will help lower the interest rate. Moreover, a shorter tenor will lessen the stress of loan due over an extended period. However, it is important that you check all other factors, such as your monthly income, savings, loan amount and others before determining the loan tenor. However, know that this will result in higher EMI. We suggest you use a Loan Against Property EMI calculator to see what EMI would be affordable for you based on your monthly income and expenses.
Look for Insurance Cover:
While availing of a loan for a higher amount, it is important that you check with your lender if they provide insurance coverage or not. Many lenders provide insurance coverage in the form of term cover with the loan amount. Insurance money will help in easing out any financial burden during unfortunate future events.
Choose Floating Rate of Interest:
While availing of a loan against property, your loan is secured. Therefore, there is a chance that your lender may charge a lower interest rate. However, a fixed rate of interest over the outstanding loan amount generates a higher interest rate than the current market rate, owing to future risks. Opting for a floating rate of interest, therefore, is generally beneficial.
Be Patient as LAP takes Extended Processing Time:
It is wise to keep scope for a significant buffer time before availing of a loan under the LAP scheme. Verification of documents, scrutiny of property, and other legal details verification take a good amount of time. If you are looking for immediate loan disbursal, then LAP will not serve any purpose. Take a loan using the LAP scheme only when you are not in urgent need of money and have sufficient time in hand. Consider applying for LAP a month before you need the loan amount.
Choose Loan Against Property Balance Transfer facility:
Borrowers opt for a Loan against property balance transfer when they find a lender willing to pay a lower interest rate for a loan. Loan balance transfer helps in shifting the outstanding loan amount to a new lender or to the existing lender under a different interest regime.