Banks are usually considered to be frail and dangerous organisations, but they are essential for growth. After all, it is better than routinely stuffing spare cash under your mattress. According to an old circular model, money has to move between firms and households to maintain the stability of our economy. Therefore, banks recycle the private savings into business loans. This helps the firms invest and grow together. Keeping the saving gluts aside! Loan against property or a mortgage loan is a secured personal loan which can be availed by pledging one’s property as a security or collateral. It is an all purpose loan! One can avail these loans for all sorts of expenses, be it healthcare, marriage, education abroad, starting up a business or simply a risky investment on their favourite stocks in the market.
The interest rates levied upon these mortgage loans range between 8% to 25% per annum. An aid upto Rs. 25 Crores can be provided for a repayment tenure of 20 years. The processing fee for the execution of the mortgage loan is roughly about 2% to 3% of the loan amount in addition to the GST. The interest rate on loans against property usually depends upon the loan amount availed by the borrower as well as the type of loan plan and various other factors on the grounds of the terms and conditions of the lender.
FACTORS AFFECTING INTEREST RATE ON LOAN AGAINST PROPERTY:
When it comes to mortgage loans, different banks provide variegated amounts of loans in accordance to the market value of your property. Similarly, the interest rates also differ based upon the following factors:
- Tenure of the Loan: The repayment tenure is inversely proportional to the interest rate levied, shorter the tenure higher the interest rate. This is because the lender would try to gain as much profit as possible through the interest on the LAP.
- Credit Score: You must at least have a credit score of 700, if you wish to get a loan at a lower band on the range of interest rates.
- Type of the Property: The market value and the type of property severely affects the interest rate of the loan.
- Profile of the Borrower: The age, income, occupation, etc., also determines the interest rate being charged by the lender.
LOAN AGAINST PROPERTY ELIGIBILITY :
It is essential to go through the eligibility criteria which fences the approval of the loan against property in India. Before you read further about it, check if you are upto mark considering all of the following conditions. If yes, you are strapped up and good to go!
- Type of Property: The property must be in India, be it commercial or residential.
- Age: The loan will only be approved if you are a minimum of 25 years old and maximum 65 years old.
- Employment: You can either be salaried or self employed.
- Net Monthly Income: Your monthly income must be at least Rs.25,000.
- You must possess legal documentation of the property authorised by the Government of India that you’d be serving as the collateral. The documentation must include Registration Certificate, Sales Deed, Property Tax Receipts, etc.
BENEFITS OF LOAN AGAINST PROPERTY:
- Low Interest Rate: Secured loans tend to have lower interest rates as compared to an unsecured loan. Also, if you have an above average credit score and credit history, you are to easily get the loan approved at a much lower interest rate.
- Minimal Documentation and Easy Approval: Unlike unsecured loans, loan against property provides the lender with a security to fall back upon. Hence, they do not have to go through an extensive background check upon the applicant.
- Flexible Repayment Clauses: The convenience is immaculate! You can recourse your repayment tenure upto 20 years.
- Ownership of the Mortgage: The ownership of the property will always be retained with the borrower throughout the repayment tenure. Even if one fails to repay, they can sell it off to pay back the lender and keep the remaining amount to themselves. Rise in the cost of the property through the tenure is inevitable in the growing economy of India.
- Availability of Pre-Closure Alternative: You always have an option to pre-close your LAP. If your loan comes with a variable interest rate, you will not be required to pay any penalties for pre-closure. However, if it was on a fixed interest rate, you will be asked to pay a nominal fee for the pre-closure.
- Optimal Utilisation of the Property: You will be able to satisfy your financial needs with the loan amount which will be at par with the mortgage you would have offered while retaining it throughout. Without selling the property, you would be able to meet your necessities at a lower and feasible interest rate.
Conclusion
The major reason as to why people go for loans against property is due to the fact that it has a lower interest rate as compared to an unsecured personal loan scheme. It is considered to be one of the cheapest loans after a home loan. Nevertheless, all you have to do is accurately plan your finances and interest repayments in order to pay it off smoothly. You’re all set!
