A loan against property (LAP) is a form of secured borrowing, also called mortgage loans, in which you pledge a property you own in return for a high-value loan amount at economical interest rates. The market for loans against property has gathered popularity in the country, with a growth rate of 22% through 2023.
If you need substantial funding but want an alternative to selling a property, mortgage loans may be your best bet. However, to truly benefit from this form of financing, consider these 5 factors before taking a loan against property.
The loan amount you can get
Under the umbrella of a loan against property fall loans like loan against land, home mortgage loan, land mortgage loan, loan against plot and mortgage loan against agricultural land. The common practice is that lenders offer you a percentage of the market value of the property you pledge as a loan.
The interest rate offered on the loan
Generally, property mortgage loans offer cost-effective interest rates as a security backs them.
However, this rate can vary from lender to lender. Additionally, you have the choice of choosing between a fixed and a floating interest rate on your mortgage loan. One lender offering affordable rates is the Bajaj Finserv Loan Against Property.
The repayment tenor and the resultant EMIs
Being a secured financing, loans against property usually offer you a long tenor up to 15 years. Increasing your repayment tenor reduces the EMIs you pay each month. However, longer tenors also mean that you pay more interest in the long run. That’s why it is advisable to keep your mortgage loan tenor as short as possible.
Tax benefits you can avail
Like reverse mortgage loan that give you tax sops under certain conditions, mortgage loans give you tax benefits if you can show that you are using the loan to finance your housing needs. Section 24B allows for interest exemptions of up to Rs. 2 lakh on house mortgage loans. This means that if you use the loan as a site purchase loan to buy land and build a house, you can claim interest deductions.
The prepayment and foreclosure fees
Usually, prepayment and foreclosure fees are around 2% to 4% on fixed-rate loans. However, you typically benefit from zero charges on prepayments and foreclosures, if all borrowers and co-borrowers are individuals, loan availed on floating interest rates, and loan taken for purposes other than business use, then there will be no foreclosure/ part-prepayment charges. However, apart from above situation nominal part pre-payment charges are applicable for term Loan up to 4.72% (inclusive of applicable taxes) of the principal amount of loan prepaid on the date of such part-prepayment. Part pre-payment charges are not applicable for Flexi Term Loan (Flexi Dropline) and Hybrid Flexi. Further, loans against property with Flexi features enable you to borrow from your approved sanction whenever you need and pay interest only on the amount utilised. Additionally, it makes your borrowing easier by allowing you to pay interest only EMIs for up to the first 4 years of the term.
Additional Read: 4 factors that affect the interest rate for loan against property
To make the most of these attractive features and fasten your loan disbursal, check your pre-approved loan offer from Bajaj Finserv. Doing so will give you instant approval and access to customised loan financing.
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