As per a TransUnion CIBIL report, the number of loan against property accounts as of 31st December 2019 stood at 2.27 million, clocking an 18.7% YoY growth. In the same period, the amount of outstanding balance was Rs.4,591 billion (11.6% YoY growth), according to that same report.
These statistics substantiate the rising popularity of a loan against property as a large-ticket funding option for multitudes of borrowers. This credit facility enables individuals to avail considerable funding against the equity of their properties. However, it is also paramount to consider aspects like loan against property interest rate as well as other critical factors before availing such a credit facility.
What are the factors to consider before availing a loan against property?
Individuals must consider the following factors to improve their loan against property eligibility as well as maximise their benefits from this line of credit –
- Credit score
Individuals should duly consider their credit score before applying. It exercises considerable bearing on loan against property interest rates and eligibility. A credit score is a quantified representation of an individual’s credit history as well as their credibility as a borrower.
Therefore, lenders put considerable weight to an applicant’s credit score when assessing his/her application and also when determining the interest rates for such advance. Typically, financial institutions consider a score above 750 as the threshold for property loan eligibility.
Conversely, a low score is suggestive of a high-risk borrower with low credibility. That diminishes an applicant’s chances of approval or fetching affordable interest rates. It is the gist of how credit score affects loan against property eligibility.
2. Loan quantum
A critical consideration while availing a loan against property is the quantum of such credit. Commonly, financial institutions appraise the value of the property to be mortgaged before determining the loan quantum for which an individual is eligible.
As a general practice, lenders do not advance the entire property value as a loan but only a percentage of such value. Such a percentage is called the loan-to-value ratio. This ratio varies from one financial institution to another.
3. Interest rates
As a quintessential practice, individuals must also consider the loan against property interest rates before availing it. Typically, interest rates on a secured credit facility are comparatively lower than unsecured loans.
However, such rate varies from one lender to another. Thus, prospective borrowers ought to research properly about competitive interest rates when considering availing a loan against property.
Furthermore, prospective borrowers must also decide the better option between the floating interest rate or fixed interest rate –
- Floating rate varies according to prevailing market rate fluctuations.
- Fixed-rate is generally higher than a floating rate.
Individuals might also note that their property loan eligibility also has a bearing on interest rates.
4. Repayment tenor
Reputed financial institutions allow a tenor of up to 20 years on a loan against property. Such a considerable period allows individuals the financial convenience essential to the repayment of a large-ticket credit.
However, individuals should note that while a longer tenor significantly brings down the EMIs, it causes the cost of the loan to go up. Conversely, a shorter tenor involves high EMIs but low interest accrual. Thus, prospective borrowers might use facilities online loan calculators to determine what best suits their financial footing.
5 Loan charges
Apart from a loan against property interest rate, such a credit facility also involves other charges as well. It includes processing fee, penal charges, as well as prepayment and foreclosure fees. Usually, with a floating rate mortgage loan, prepayment and foreclosure charges are zero. Nevertheless, individuals should properly research the various charges that different lenders levy on a loan against property to ensure a well-informed borrowing decision.
Additionally, individuals might also look into the tax benefits that they can avail from a loan against a property. It would allow them to maximise their benefits from this credit facility.