The mortgage sector in the country has been growing at a robust pace over the past decade and is expected to grow even faster. Loans on private properties have been one of the major factors driving this high growth. However, if you already own a property, you may not qualify for a home loan. In
The mortgage sector in the country has been growing at a robust pace over the past decade and is expected to grow even faster. Loans on private properties have been one of the major factors driving this high growth. However, if you already own a property, you may not qualify for a home loan.
In this situation, you may opt for a loan against property (LAP). This option allows you to capitalize the financial value of your home. The borrowed amount may be used for any purpose, such as children’s education, business expansion or other personal needs.
Before you decide to avail of a LAP, you must consider the following seven factors.
- Loan amount and monthly installment
The amount of loan principally decides the equated monthly installment (EMI). Generally, longer tenure reduces the EMI amount. However, a shorter loan duration reduces the overall interest expense and helps save money.
2. Interest rates
There are two kinds of loan against property interest rates available. These are fixed and adjustable interest rates. Under the former option, the interest rate remains fixed throughout the loan tenure. On the other hand, adjustable rate means the interest varies based on the overall market interest rate.
Insurance reduces your risk as well as that of the lender. The lender is more confident while approving your application when you are willing to avail of an insurance. Furthermore, your family is secured when you opt for insurance in case of an unfortunate incident.
4. Property age
The age of the property plays an important role in determining the maximum loan tenure. Older buildings have shorter tenure and vice versa. However, your LAP eligibility may be positively impacted in case you have recently renovated your property.
5. Insufficient tax returns
Lenders require at least three years’ tax returns if you are self-employed. Some lenders may not consider your eligibility if you do not have sufficient returns. However, it is advisable you support your application with proof to show your repayment capability.
6. Income regularity
You must have a regular and adequate income to repay the private loan against property on time. This assures the lender that you are able to repay the EMI and you are also perceived as a low-risk borrower.
Most lenders consider your age when you apply for a loan against property. This is to ensure you are able to repay the borrowed amount before retirement. Generally, you may not have sufficient income to repay the EMI, which makes you ineligible if your age is higher.
In addition to interest, lenders levy processing fees, prepayment penalty, renewal charges, and more. All these must be added to calculate the effective cost of your borrowing. LAP is an excellent way to capitalize your property. However, consider the various factors before you decide to apply for a LAP and mortgage your home.