Mortgage loans can assist you in financing major expenditures. The interest rates associated with them are also much lower than unsecured loans. However, many customers are still apprehensive about this loans option.
To assist them, below are the answers to some of the most commonly asked questions about the loan against property on the internet.
Q.1. What is a loan against property?
A loan against property is the most common form of a mortgage loan. Only after you have pledged your property related documents with the lender; they will approve your loan application. The lender will keep the charge on your document until you have paid off the complete principal amount plus interest. The loan amount is decided by the market value of the property under this type of loan.
Q.2. Are a loan against property and a home loan the same thing?
This is the most common query that most borrowers have, and you may be confused as well. Both home loans and loans against property are examples of mortgage loans. However, when it comes to product features, they are vastly different. You can apply for a home loan, only for the purchase or construction of the new house. But when it comes to LAP, you are free to utilise the cash for whatever personal or business reason.
Q.3. When should I consider taking a loan against property?
If you need a large sum of money over a long period of time, LAP is the way to go. Using this loan to satisfy short-term requirements is not recommended. This is because when you take out a LAP, your property is mortgaged with the lender. In the event of default, they have the right to auction your property. Simply put, putting your high-value property on the line for a few lakhs is not a smart move.
The following are some of the ideal scenarios in which this loan would be suitable.
- Purchase/ construction/ addition of the house or building
- Business expansion or setting up a new business
- Medical emergency
- Child’s higher education
Q.4. What are the factors that influence the loan against the property interest rate?
Several factors impact your loan against the property interest rate. Some of them are listed below.
- The lender will approve you for a high-interest loan if you have an average income.
- Keep your debt-to-income ratio below 50% to get a low loan against the property interest rate.
- Your age is also crucial, as it highlights your earning potential.
- The type of property, whether commercial or residential, has an impact on the interest rate.
Q.5. What is the maximum tenure for which you can take out a loan against property?
Most financial institutions offer LAP for a maximum duration of 15 years. They also provide you with an option to choose the repayment tenure on your own. Always use an EMI calculator to determine the ideal tenure.
Opt for short-term LAP if your budget permits. Remember that while a shorter tenure increases your EMI load, it also reduces your interest payment by a significant amount.
Q.6. Are there any tax benefits on taking out the loan against property?
There are no direct tax advantages to taking out a loan against property. However, you may be able to claim tax benefits on LAP in some instances.
Business owners can claim a tax benefit on LAP under section 37(1). However, in order to receive this benefit, you must use the funds to cover business expenses. The processing costs, interest rate, and paperwork charges are all eligible for a tax deduction.
If you are a salaried employee who took out this loan to buy a home, you are eligible for a tax deduction of Rs 2 lakhs under section 24(B).
However, there are no specific tax benefits under section 80C of the Income Tax Act, 1961.
Q.7. Can I obtain a loan against the commercial property?
Yes, you can. In fact, most lenders prefer commercial property over residential property. This is because commercial spaces are slightly more expensive than residential properties. Furthermore, the commercial estate is usually located in a posh region or a busy marketplace. In the event of default, the lender will have little trouble finding a buyer at the auction and recovering their losses.
Q.8. What is the maximum amount that I can borrow by mortgaging my property?
The lender usually sanctions a loan for the maximum loan-to-value ranging from 40% to 75%. The maximum amount that you can acquire through this loan is Rs. 15 crores. However, the maximum loan value is based on several parameters, including your income, credit profile, age, and a property’s current market value.
A loan against property is suitable for all your short term or long term financial needs. Yet, you must consider the risk factor before applying for this loan. If you have any further queries related to loan against property interest rate or its usage, drop your query in the comment section.