Loan against property is a process of opting for the loans by an individual by mortgaging the property and submitting the documents to the lender, and availing liquid cash in return for that. The borrower should also have the property with clear titles and with no partner or co-owner be involved in the property. The borrower should also have an average score of CIBIL ratings, such that the loan can be approved. The loan against property can be taken or should be considered only when the individual needs liquid cash to satisfy his/her needs like buying a new property, renovation of the property, expansion of the business, travel purpose, marriage purpose. Etc. The loan against property is very much useful for the when during an emergency as mortgaging property is an immediate option to raise some liquid cash in hand. Loans can be repaid over 15 years. The timely payment of loans installments is necessary as in other cases the bank may charge a penalty to the borrowers.
The funds borrowed under loan against property are not liable for the income tax deductions. Only in case of the amount invested for the purchase of the property the borrower can avail tax benefit on the interest being paid to the lender. The borrower can avail immediate liquid cash from the lender, without any hesitation as the property is already being mortgaged by the borrower to the lender, and hence there is a surety to the lender that they can recover the funds through the seal of assets of the mortgaged property and thus will not be left with under-recoveries. The borrower can avail of a loan up to 60-70% of the total property value as liquid cash in hand. Banks charge interest rates of 9-15% per annum to the borrowers in case of a loan against property. Thus as the interest rates are reasonable it is better to avail funds by mortgaging the property documents to the lender. Also, foreclosure of loans is possible in case of loan against property to become early debt-free. There could also be some rebate being given by the bank on the early repayment of loans. Early repayment of loans can also help the borrower improve the CIBIL score thus making it easy for the borrowers to avail future credits. The property documents with clear titles are major criteria for the approval of loans as the monthly income does not carry much of the importance due to the surety with the lender about the recovery through mortgage of property documents.
Rules for loan against property:
- Borrow based on your financial situation:
The applicant should borrow the loans according to the financial repayment capacity only. The home loans installment amount should ideally be in the range of a maximum of 45-50% of the monthly income, as the funds are required for the other basic expenses as well. Borrowing excessively can lead to an excessive burden on the borrower. Thus obtaining loans up to limited needs is essential.
- Make the payment of installments on time:
The borrower should pay the amount before the due date to avoid paying penalties on loans. The bank charges a heavy penalty on the default of loans and also the CIBIL ratings of the borrower may go down. Thus to avoid such situations installments should be paid on time.
- Ensure that the documents are proper while availing loans:
The documents should be in the proper format while submission of documents for availing loans. The property documents should be with clear titles and there should not be any co-owner in the property ownership. Also, other documents should be attached like the government identity proofs, income proof & employment proof. If the bank finds that the documents are not proper then the bank may reject the loan application of the borrower.
- Read the terms & conditions of the loans carefully:
The terms & conditions of the loans should be read thoroughly by the applicant before signing the documents. The tenure of the loan, due date for payment of installments, penalty charged in case of the delay in payment of installments and the interest rates charged, and also the total repayment value liable to be paid to the bank.
Thus the rules & regulations mentioned above should be followed by the loan applicant while availing loan against property. Paying timely installments can help an individual improve the credit score and help maintain a healthy relationship between the borrower and the lender.
