Adhil Shetty
With a loan against property, you can overcome any cash crunch, especially that which requires a substantial amount. Whether you are paying for your child’s wedding, financing overseas education or starting a business venture, a loan against property can fund it all. However, the key to a financially stable life is retaining ownership of the property you have pledged, which is much easier to do when you have your priorities in order. Look at all you need to consider when you are taking a loan against property.
Understand the stakes
While funding your parent’s medical requirements, paying for your new business space, purchasing another home for your newlywed son or financing your child’s medical studies in UK is important, avoid haste. Understand the asset that you will be pledging to the lender in exchange for funds. Even as you can pledge a piece of land, residential property, or commercial property, you need to stop to weigh the pros and cons of your financial decision. Remember that the real estate market is on an upswing in the long-term. So, analyse how affordable the loan is for you to ensure you aren’t losing out on a valuable asset if you cannot repay the loan. It is also important to know the value of your property. This way you can secure a better deal from a private sector bank that usually offers up to 75% of the property’s value or from a public bank that usually sanctions up to 65% of your property’s value.
Evaluate your eligibility and have your documents ready
Even though you are pledging your property in return for money until repayment, you are still required to fulfil the eligibility criteria for the loan. To measure your eligibility, lenders look at your age, income, existing financial responsibilities, repayment and credit history, and the property value as per the current market rates. Don’t forget that all co-owners of the property will need to confirm their agreement on the pledging of this asset for your loan. You will also need to submit documents to prove your eligibility, which is why, it is better if you have them ready beforehand. These documents will involve your personal documents, including identity, income and address proof, as well as that of the property.
Choose better interest rates and shorter tenors
When considering a loan against property, get the most affordable offer for your asset. Choose between floating and fixed interest rates by keeping an eye on the fluctuations and predictions of the market. Shop around for lenders who offer competitive interest rates. While a small difference in an interest rate won’t seem like much, it can affect the affordability and repayment of the loan in the long run. Finding a nominal interest rate can also help you choose a shorter tenor, thereby reducing your expense on interest and helping you get debt-free faster. With a shorter tenor and higher EMIs, you can take years off your repayment plan!
Forecast your expenses for a sound repayment plan
Just finding the best interest rate is not enough. It is still necessary that you plan your repayment in advance and have a strategy in place to repay your borrowed sum. Use an EMI calculator to see the total interest you will pay over the years while also measuring the ideal EMI as per your income. Factor in your monthly expenses and your existing financial responsibilities to ensure repayment doesn’t burden or overwhelm you with more than you can handle.
Pay attention to the repayment terms and fine print
Despite the hurry or the monotony of the paperwork, read the repayment clauses. Understand the terms in the fine print. Are you going to be charged an extra fee for foreclosure of your loan? Is there an extra charge for part-prepayments? Reviewing the fine print can help you ensure you are dealing with the right lender, locate any hidden charges that can affect your affordability, and help you stay cautious about any extra expenses you may incur.
By factoring in the above tips, you can ensure you aren’t making any rookie mistakes while taking a loan against your prized asset.
The writer is CEO, BankBazaar. Views are personal.
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