Loan Against Property: 5 Important Rules To Follow
For those looking out for immediate financial assistance involving a large amount of money, the best option is to Apply for a Loan Against Property. These loans are easily processed as the property is considered as collateral against the loan that is sanctioned. The loan amount depends upon the value of the property that is pledged.
Therefore, this is an easy and reliable scheme for property or real estate owners. However, there are some rules that need to be followed to ensure that the loan availed does not become a burden eventually. Here are five golden rules to follow before you Apply for Loan Against Property in India.
1. The Loan Amount Should Be Calculated as per the Financial Capability
As mentioned above, the most significant advantage of a loan against property is that it is possible to get a large amount of sanctioned easily. However, the repayment capacity of the borrower is an important factor in determining the loan that can be availed by the borrower. Usually, between 50 to 90% of the property value is provided as the final loan amount. Calculating the EMI on the loan amount will help the borrower understand the outgoing amount each month. Only if this amount fits in the monthly budget should one should apply for a loan against property.
It is mandatory that the EMI that is paid against the loan should not exceed 50% of the monthly income of the individual. If the EMI is higher than this, it will become harder for the individual to retain funds for other financial investments that are more important such as education of the children, a retirement plan, rent etc. This could lead to lapses in the repayment of the EMI. Consequently, the property that has been pledged will be put at risk as the EMI will pile up each month.
2. The Shorter The Tenure Of The Loan, The Better
A flexible repayment term is one of the most attractive features of loans like PNB Housing Loan Against Property. That said, it is still advisable that the tenure that the loan is applied for is kept as short as possible. In most cases, the tenure available for a loan against property will range between 5 to 20 years. It is an attractive option to apply for a longer loan term as the EMI that is paid will reduce. However, with a longer loan term, the interest that is paid towards the loan is higher. This means that the borrower will end up shelling out a larger sum of money towards the end.
It might not be possible for the borrower to opt for a shorter loan term initially. However, with loans like DHFL Loan Against Property, the option of reducing the loan tenure after a few years have passed is available. When the borrower gets a large influx of money such as an increase in the salary or any other source, it is possible to reduce the loan term as per the conditions applied by the lender. When the loan tenure is reduced, there are two advantages. First, the loan will be repaid faster which also means that the property is released faster. In addition to this, the amount that is paid towards the interest also reduces considerably, allowing the borrower to save money.
3. The EMI Should Be Paid on Time
It is important to note that with each EMI that is lapsed, the property that is pledged is under a higher risk of being seized. Defaults in repayments can become an issue for several reasons. First, every delayed payment attracts a late payment fee. This requires the borrower to shell out more money each month. The credit score is also hampered as the lapses in repayments will be recorded in the credit report of the individual. In case the irregularity in repayment is consistent, the interest keeps piling up. This will make it harder for the borrower to repay the necessary EMI to cover up for the lapses. Therefore, making repayments on time is a must.
4. Opt for Insurance in Case of High Loan Amounts
The larger the loan amount, the bigger the risk. With loans like PNB Housing Loan Against Property, there is an added risk as the property of the borrower is pledged against the loan. It is impossible to predict the future which may demand a large investment. For instance, the borrower could lose his or her job, there could be a medical emergency that requires immediate financial assistance or more. These situations make it harder for the EMI to be repaid on time.
To ensure that the family of the borrower is not burdened due to these unforeseen circumstances, choosing insurance is a wise decision. The large loan amount is insured against such emergencies. The lender will be able to provide a feasible insurance option that also has a very low premium annually. At a low cost, the borrower can avoid issues such as the property being seized due to irregular repayments.
5. Read All the Documents Carefully
Before signing the documents for any Loan Against Property or otherwise, make sure that all the guidelines and conditions are studied thoroughly. These documents are often lengthy, making individuals skip through them. Make sure that all details pertaining to the Loan Against Property such as the late repayment penalties, foreclosure charges, processing fees, pre-payment charges, administration fees, etc. are studied carefully before the documents are signed. For any queries pertaining to the loan, the borrower must contact a loan aggregator and clear all doubts.
This protects the borrower against any possible disputes that may arise in the future. If there is any confusion with respect to the terms and conditions, the borrower might incur heavy penalties or other face severe legal consequences.
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