You need money to fund your business but are unsure where to get it. So why not let your property realize your dreams?
Applying for a loan against property is an excellent strategy to unlock its value while still residing in it. According to these professionals, not only is the loan process simple, but the loan can be obtained for both residential and commercial property. Additionally, these multi-purpose loans are intended for the long term and are an excellent alternative to selling your house. Finally, since your property secures the loan, the interest rates are lower than personal or business loans.
Salaried and self-employed professionals can avail of the loan against property, and the secured funds can be used for various purposes. However, before you apply loan against property, you must consider some essential factors listed below.
Things to Consider Before Taking a Loan Against Property
Some of the crucial things to keep in mind before applying for a loan are mentioned below.
- Property Valuation
A borrower must know the property’s actual worth he will pledge as security before asking for a loan against it. Several things determine the market value of a property. This covers age, location, amenities, size, and so forth. By calculating the value, borrowers may estimate how much money they can raise by pledging it. This is because most lenders offer 60-70 per cent (LTV) of the property’s market value.
- Borrow the Right Amount
Once you’ve determined the valuation of your property, the next step is to evaluate how much money you’ll need to borrow to prevent falling into debt. As a result, it is critical to estimate your expenditures in mind. For instance, if you utilize the cash as a property purchase loan, determine the price of the selected real estate and additional charges. This will help decide a loan amount that you can serve with your monthly earnings without going into default.
- Compare Interest Rates And Other Charges
The loan’s interest rate is crucial in assessing its affordability and your capacity to repay it. Because these loans are more significant and for a more extended period, you should look for the best lender with the lowest rates.
Additionally, when evaluating multiple lenders, you must not restrict your inquiry to only the interest rates quoted. Other factors to consider are prepayment penalties, processing fees, foreclosure penalties, late payment fines, etc. As a result, while calculating the cost of obtaining the loan, you must add up all of the fees. These charges may appear minor, yet they significantly impact borrowing costs.
- Repayment Tenure
The loan against property is a long-term loan with a maximum tenure of 15-20 years, depending on the lender. However, choosing a longer repayment term would make your EMIs more manageable, but you will have to pay a higher amount on the borrowed cash. On the other hand, your interest payout will be lower if you select a shorter period, but your EMIs will be more significant.
- Tax Benefit
Suppose you use the money secured by a loan against property for business purposes or as a property purchase loan to buy a new property. In that case, you are eligible to tax benefits under Section 37(1) and Section 24(B) of the Income Tax Act.
A loan against property is a simple approach for obtaining finances when needed. The money collected can be utilized for various activities, including business-related expenses, medical emergencies, purchasing a new home, paying for children’s education, weddings, and other personal necessities. However, before applying for a loan against property, keep the points listed above in mind to ensure a stress-free term.