Here are 5 things to remember with a loan against property.
Posted by Anurag Mishra on September 26th, 2017
A LAP is a great way to meet any immediate financial needs you might have. With aLAP you can arrange finances without selling any of your assets or breaking any savings instrument such a fixed deposit or mutual fund. To avail a LAP you need to put some property on mortgage, this could be a residential property that’s self-occupied or rented; it could also be a commercial property and even a vacant plot. Another great advantage is that you can use the proceeds for any needs without any restrictions.
Though it has so many advantages, there are a few things you should keep in mind before applying for a LAP. This article will highlight some of these things to help you make a better informed decision.
Loan Amount of a Loan against Property.
Some people often think that they will get an amount that’s equal to the market value of their home. However, this is not true. Rather, banks & non-financing institutes will only provide up to 50-60% of your property’s value as the loan amount. This is actually more than enough as this amount often runs in to crores of rupees.
Longer processing times.
LAPs provide a great way to conjure up fast money for any of your needs. They provide you long tenures, low interest rates and you can use the money for any purpose. But before you receive all these benefits, you will have to wait a while. This is because LAPs generally have longer processing time. The lender will have to assess your property, its value and related documents. The lender will also take some time to judge your repayment capacity. All this can take about 30 days, depending on the lender you choose.
Absence of tax benefits.
Unlike a home loan, which provides yearly benefit of up to Rs.2.5 lakhs against the interest paid and up to Rs.1.5 lakhs for principal repayment, a Loan against Property provide borrowers no tax benefits whatsoever.
Processing and prepayment charges
Processing and prepayment charges are common to most loan options available in the market today. Most lenders charge up to 1% of the loan amount as processing fee, whereas some may even charge as much as 2% of the loan amount. You must also bear in mind that you might have to deal with prepayment charges if you decide to make payments before the tenure of your loan. Therefore it is important to compare these charges from lender to lender before you apply for a LAP. This will ensure you choose a lender with the least amount of charges.
If you are confused between a LAP & other forms of finance, remember that LAPs provide you ample amounts of time to repay your loan, up to 15 years with some lenders. Longer tenures mean smaller EMIs and an easier repayment process.
These were just some things to remember whilst making a decision for or against a Loan against property. We hope this information has been helpful and good luck!