loan against property

A loan against property is a secured credit that provides access to immediate funds. One has to mortgage his or her property as collateral to avail this.

Long repayment tenor, affordable interest rates, no-end user restrictions are the reasons why individuals opt for a loan against property. One can get affordable EMIs on this secured credit facility.

However, there are certain critical pointers to know about before applying for one. 

Tips to remember to get affordable EMIs

When one mortgages their property to apply loan against property, one remains its rightful owner. However, one must be wary that the financial institutions have the right to liquidate that mortgaged property if he or she fails to follow through with the repayment tenor. Hence, one needs to plan their finances accordingly. 

One should know that his or her monthly payable should not exceed 65% of their net monthly income. So, here are the pointers that one should remember to get affordable EMIs: 

Choose the tenor wisely 

A tenor is a window that a lender provides to the borrower to repay the loan. In most cases, the lending institutions will provide a tenor of 20 years, lowering one’s EMI liability. However, individuals must understand that the tenor is inversely related to the monthly payable. Thus, a longer tenor will fetch a lower EMI but increase the total interest outgo. 

On the other hand, a shorter tenor will fetch higher EMIs. Most financial institutions offer a longer tenor, easing the borrower’s repayment capacity. Hence, it is essential to know how to determine the ideal tenor of your loan against property. 

Pay more in down payment 

Down paying a significant amount of a property’s valuation helps borrowers limit the loan principal, thereby reducing EMIs. Moreover, one must be aware of the concept of LTV. 

Loan to Value ratio refers to the percentage of a property’s price that the lending institution finances through a loan against property. Therefore, a borrower must pay 20% as a down payment, whereas the lender pays 80% as LTV. 

Get an affordable interest rate 

If one meets the mortgage loan eligibility, one can negotiate for an affordable interest rate. However, this depends on many factors such as the applicant’s age, property’s location, condition of the property, profile of the applicant, his or her credit score, etc. 

One should also know that if a higher interest rate is charged, then the monthly payable also increases. Moreover, one can also opt for a balance transfer, but this is applicable for existing borrowers only. This can significantly reduce the interest rate. 

For example, shifting an existing loan against property to a different lender offering 50 bps lower interest rates can reduce a borrower’s EMIs and interest liability. 

Hence, one must try to secure as competitive interest rates as possible. However, before applying for this secured credit, one must have his or her loan against property documents handy. 

Lower your FOIR 

Fixed obligations to income ratio is a percentage of one’s income spent towards certain fixed expenses. It also includes any existing debt one has. Furthermore, lending institutions prefer that the FOIR is within 40% as it assures that the borrower can pay on time. 

If an individual’s FOIR is more than 50%, the lender may charge a higher interest rate, increasing the monthly payables. Hence, one must restrict their FOIR up to 40% to avail of affordable EMIs. Therefore, one of the ways to ensure that you don’t default in your payment is by assessing the repayment capacity beforehand. 

Moreover, leading financial institutions extend pre-approved offers to eligible individuals. This facility allows them to skip the hassle of documentation and verification and avail a loan faster. It is possible due to the already established working relationship between the lender and a customer. These offers apply to various financial products, including home loans and loans against property. Borrowers can check their pre-approved offers by submitting their names and contact details. Hence, to avail affordable EMIs on loans against property, one must remember the above pointers. It is best to plan one’s finances accordingly to ensure that one does not default in payment.

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