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5 Important Rules to Follow While Availing of a Loan Against Property

A loan against property (LAP) is a secured form of loan that enables property owners to leverage their property for availing funds to fulfil various purposes like their business/personal needs. The property owner is thus, able to avail of a loan without losing the asset’s ownership. Moreover, similar to credit options like personal loans, top-up home loans and gold loans, there is no restriction on end usage of funds for loans against property, too, except for illegal or speculative purposes.

When availing Loan Against Property from top credit facilities like SBI Loan Against Property and HDFC Loan Against Property,  it becomes important for borrowers to not ignore some important facets. So let us deep dive and understand the crucial aspects and rules to keep in mind when availing loan against property.

Choose tenure as per repayment capacity.

Involvement of big-ticket size is what leads many lenders towards offering loans against property for long repayment tenures going up to 15-20 years. When choosing repayment tenure, remember that a shorter tenure would imply a higher EMI payout, whereas longer tenure would lead to smaller EMIs. However, the longer the loan tenure, the higher the overall interest cost of the loan. Hence, those choosing long repayment tenure can reduce their overall interest cost by making prepayments whenever surplus is available. Also, ensure to factor in repayment capacity when availing loan against property. This would assist in finalizing the tenure whose corresponding EMI is affordable for borrowers without straining their finances pertaining to other crucial financial goals and expenses. 

Factor in the LTV ratio and loan amount offered by a lender

For loans against property, the loan amount given by lenders like SBI Loan Against Property and HDFC Loan Against Property would depend primarily upon the mortgaged property’s valuation after factoring in various parameters associated with the property’s characteristics. Most lenders tend to provide around 50%-75% of the property’s market value as a loan. This would also depend upon the LTV ratio set by the lender, applicant’s income, repayment capacity, property type, location, etc. Hence, it’s always good to have a basic idea about the LTV ratio and estimated loan amount that can be availed, as this assists in knowing whether the amount would suffice the borrower’s requirements or not.

Be aware of the expected disbursal time.

Another crucial rule to remember when availing loan against property is to factor in the expected disbursal time of the loan. Given that lenders need to carry out the process of evaluating the market value of the property, numerous factors like location of the property, age of the property, infrastructure, etc. All these involved in inspection and evaluation process and then disbursal all together usually takes few weeks in case loan against property. When availing this loan from lenders like HDFC Loan Against Property, remember to enquire with the lender regarding how much time is expected to be taken for the entire process till disbursal. This is important because those requiring urgent funds may not find it suitable to avail of a loan against property, whereas those who need big-ticket funds and can wait for a week for disbursal can go ahead.

Compare the interest rates of various prospective lenders.

One of the most crucial parameters to factor in when choosing amongst lenders like SBI Loan Against Property is the interest rate offers. Given that loan against property is a secured loan backed by the mortgaged property, its interest rates are usually lower than many credit options, especially the unsecured ones like personal loans. Hence, to avail of the best interest rates for a loan against property, it’s advisable to compare those offered by various prospective lenders before zeroing in on anyone to submit an application.

Avail the tax benefits depending upon end usage of funds

Many borrowers availing loans from HDFC Loan Against Property or other lenders may not be aware of the tax benefits available on funds availed through a loan against property. In this case, the tax benefits tend to depend upon the end use of loan proceeds. Section 37(1) of the Income-tax act involves tax deduction for the interest paid and associated costs to be claimed as an item of business expenditure. Also, if the loan proceeds are used towards the purchase of another house property, the interest repaid could be claimed as tax deduction under Section 24(b). However, the loan against the property borrower must be able to conclusively be able to establish a solid link between the loan proceeds and its ultimate end usage in order to avail the tax benefits.

Factor in the processing fee and prepayment charges

Irrespective of whether the loan against property is being taken from SBI Loan Against Property or other lenders, the loan involves processing charges, which need to be factored in the borrower when estimating the cost of the loan, apart from the interest rate. Comparing the processing fees, prepayment charges etc., of various lenders, is important as these fees and charges tend to vary for different lenders. Also, as a loan against property is usually a big-ticket involving large loan amounts, even a slight difference in these charges can become a significant amount, which can reduce or increase the borrower’s overall interest cost for the loan. Its therefore prudent to compare and opt for the lender who offers a good deal after factoring in all the parameters like interest rate, amount, tenure, fees and charges etc.

Final Word 

Now that it’s pretty clear as to what the key parameters and aspects of loan against property need to be kept in mind by the borrower, it becomes easier to choose the right lender for the loan. Crucial aspects of a loan against property, such as low-interest rates, long repayment tenure, processing fees, loan amount and LTV ratio, etc., are the driving factors that affect the borrower’s decision in numerous ways. Upon comparing these features of various lenders like SBI Loan Against Property and HDFC Loan Against Property, a borrower can zero in on the best deal as per financial requirements.  Go for the lender who offers a suitable loan deal on the basis of the borrower’s income, credit score, job profile and other loan eligibility criteria.

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