Loan against property is one of the most popular loans you would find in India. Reasons that make a loan against property popular is its usability, low rate of interest, long repayment tenure, high loan amount, flexible repayment options, and instant approval.
Why Should You Apply For a Loan Against Property?
Out of the various types of loans offered by Indian lenders, two loans are the most convenient, as you can use them for any purpose you wish to. The first is a loan against property, and the second is a personal loan.
While a loan against property requires you to keep your residential or commercial property as a collateral guarantee with the lender, a personal loan is an unsecured loan, which means you do not require to mortgage anything to avail the loan.
Going by the definition, it may seem that a personal loan is better than a loan against property, as you do not have to mortgage anything. But, this is far from the truth, as the interest rate of a personal loan is much higher than a loan against property. Also, the tenure and the loan amount is lesser.
Let us now explore the top-5 factors that affect the loan against property tenure.
The first factor that determines the loan against property tenure is the repayment period. Generally, you may get repayment tenure of up to 15 years, and the Loan to Value ratio can be up to 70% for residential property and 60% for commercial property. This means that if your residential property is worth INR 1 crore, you can get up to INR 70 lakh as a loan, which you need to repay within 15 years.
The tenure depends on the loan amount. A few reputed lenders give up to INR 12.5 crores as the loan amount. The higher your loan amount, the longer repayment tenure you may avail of.
2. Interest Rate
Loan against property interest rates is of two types - fixed and floating. A fixed-rate of interest is one in which your EMI amount remains the same for the entire tenure. In floating, the interest rate changes periodically. At present, the floating rate of interest starts from 9%.
Loan against property interest rate and tenure are interdependent, which means a higher tenure will require you to pay a higher interest. On the contrary, if you choose a short duration for repayment, your interest rates would come down.
3. Credit Score
Just like your credit score affects the loan amount, it also affects the loan tenure. If you prepay your loan by paying a small foreclosure charge, your credit score may increase, thus enabling you to apply for an even larger and better amount in future.
Lenders like borrowers with a credit score of 700 and above. The closer your profile is to 900, the better your chances are of availing a loan against property at attractive interest rates.
Age is another important factor that determines the tenure. As you can apply for a loan against property soon after attaining 21 years of age, you can get a lower rate of interest and higher repayment tenure, as the time is by your side. On the contrary, if you are 55, then you have to repay the loan within ten years, as the highest allowed age at the time of loan maturity is 65.
Thus, keep into account your age before applying for a loan against property.
5. Income and Debt to Income Ratio
Your current income and monthly liabilities play a major role in determining the loan amount and tenure. Lenders usually have a higher respect for borrowers whose debt is at or less than 40% of their net monthly income. They reward such borrowers with a low rate of interest and flexibility in repayment tenure.
Hence, if you want to get the best out of the tenure of your loan against property, try to consolidate your current debt before applying for the loan.
With rising NPAs, lending institutions are tightening their grips on loan approval. To get the easiest approval on the loan borrowers must have to fulfill the loan against property eligibility criteria. To stay ahead of the curve, you have to stay updated with the latest rules and regulations.