There can be no debate about the fact that a property is one of the most valued assets owned by any individual. And, it can come in immensely handy when you need a large amount of money but do not want to dip into your savings. In other words, a loan against property (LAP) is a secured loan that can be availed to fund expenses related to marriage, education of children, emergency medical needs, business expansion etc. Moreover, since it is taken against collateral (your property), it is easier to get one and get approved for it quickly. Usually, lenders fund up to 70% to 80% of the market value of a residential property. Now, typically, a LAP is spread over 10-15 years, depending on various factors. These days, apart from residential and commercial properties, lenders are also offering loans against plots of land.
So, if you are planning to apply for
finance against property, here are the things you should keep in mind:
Loan tenure
Loan tenure is essentially the period over which you can repay the loan. So, assess your financial condition and repayment capacity, and then choose a financial institution that offers a loan period that is suitable for your requirements. The majority of lenders offer a loan against property for the maximum tenure of 15 years. However, bear in mind that the interest amount will depend on the tenure. The longer the tenure, the lower will be the interest charged, and vice versa. To understand the impact of loan tenure on a
loan against property interest rate, let's take an example.
Assume you and your friend each took a mortgage loan on commercial property for Rs 20 lakh at a 10% interest rate. However, you chose a 15 years payback period, whilst your friend chose a 10 years repayment period. The difference between both loans will be as follows:
Parameters | Loan Against Property Availed by You | Loan Against Property Availed by your Friend |
Loan Amount | Rs 20,00,000 | Rs 20,00,000 |
Interest Rate | 10% | 10% |
Repayment Tenure | 180 months | 120 months |
EMI | Rs 21,492 | Rs 26,430 |
Total Interest Paid at the End of the Loan Term | Rs 18,68,578 | Rs 11,71,618 |
Interest Percentage in the Repayment Amount | 48% | 37% |
The above table clearly shows that, while your EMI is Rs 4,938 less than your friend's, you will still end up spending Rs 6,96,960 more as the interest component at the end of your loan against the property period than your friend. It is recommended that you utilise the
loan against property EMI calculator to save money on interest and choose the best term.
Also Read: Resolve Financial Emergencies with a Loan Against Property