According to a CRIF High Mark report, borrowers aged 36 years or above are more likely to avail secured credit than unsecured options. A loan on property is often the first choice for many individuals looking for secured funds with flexible usability. This funding option offers significant loan amounts, sufficient for a wide range of personal or commercial requirements.
Still, it is easy to get swayed and fall victim to the debt burden trap. Loan-seekers can avoid this disaster with effective financial planning and a thorough research of the financial product in advance. Here are some of the most crucial aspects to consider before getting a property loan.
Determine your exact fund requirement
Repayment of any financial product, including mortgage loan, includes an interest component along with the principal amount. This interest amount depends heavily on the fund borrowed and will subsequently increase if the proceeds are significant. Therefore, borrowers must chalk out their precise loan requirement by listing its potential utilities. Tallying your monthly income and expenses is also one of the ways to effectively repay your existing loan without much hassle.
Evaluate your property
A property’s value depends on its size, area of situation, age and builder’s reputation, among other factors. Holdings with high value offer greater security to lenders due to which they prioritise sanctioning such loan against property. Therefore, always determine your property’s value to estimate available funds using the lender’s loan against property calculator.
Steer clear of cross-securitisation
Many a time, individuals willing to purchase a new property might want to mortgage that along with an existing property in the hopes of a larger loan amount. This solution is even encouraged by many financial institutions. However, this might not be a good idea since borrowers stand the risk of losing both properties in case of a lap loan default. A better alternative for more funds can be getting 2 separate loans against each property.
Compare policies of various lenders
Several features such as property loan interest rate, LTV ratio, eligibility etc. vary across lending institutions. It is important to conduct a thorough research on these aspects for effective financial management. While a higher LTV ratio will offer a greater percentage of property value as fund, a lower interest rate will make said fund affordable. Several HFCs also place additional charges like processing fees, documentation fees, etc.
Additionally, loan seekers must check for other policies like pre-payment charges and flexibility in repayment tenor. Some financial institutions also extend pre-approved offers against mortgage loans like loan against property and home loans for speedy fund transfer. Potential borrowers can check their pre-approved offer by submitting their name and contact details before proceeding further. They can compare such benefits offered by different lenders and then pick one with the deals.
Know about tax benefits
The Income Tax Act allows borrowers to optimise their savings on a loan on property by availing of tax exemptions under several sections.
Individuals can file tax returns under Section 24 to enjoy tax deductions on mortgage loan interest rates. The new tax regime cancels out tax savings on principal amounts under Section 80C. However, individuals paying taxes under the old regime can still avail of it. Plus, accurately filing expenses due to construction on or repair of mortgaged property can also help borrowers save additional taxes.
Perform eligibility checks
Qualifying for a loan on property requires meeting several lender-specific criteria and documentation. However, some of the standard parameters are as follows.
- An applicant must be aged between 25 and 70 years.
- He/she must have a steady income source such as a job or business.
- Individual must be a resident of India.
Additionally, borrowers must keep handy the list of documents needed to apply for a loan against property for seamless verification and approval.
Note that, before proceeding with the application process you must have a detailed idea of your monthly income and existing financial liabilities. Opting for a loan on property exceeding your repayment capacity can lead to a disastrous debt trap and even lead to your property getting confiscated. An easy way to reduce the burden of interest is making a larger down payment and selecting a shorter tenure. Although these can cause extensive expenditure for some time, it can also lead to effective financial management in the long run.