From reading the fine print to choosing a shorter time period, these tips will help you have a better loan experience.
Adhil Shetty
Taking a loan against property can help you deal with a cash crunch, especially when a large sum is required. Whether you need money for your child’s wedding, sending him to study abroad or starting a new business, a loan against property can prove to be very helpful in meeting such needs. However, for a stable financial life, you must retain the ownership of the property that you have mortgaged. Let’s see what to keep in mind while taking a loan against property.
Understand your needs
When arranging for money for your parents’ medical needs, paying for your new business place, buying a second home for your newly married son, or funding your child’s medical studies in the UK, do not rush. Try to understand the value of the asset you are pledging with the lender against that money. You can mortgage your land, residential property, or even a piece of commercial property but before that you must understand the pros and cons of your financial decision. Remember that the real estate market is going to boom in the long run. So try to find out how much your loan is affordable for you so that in case you are unable to repay the loan, you do not have to lose your valuable asset.
It is also important to know the value of your property. This way you can get a better deal from a private bank which usually gives loans up to 75% of your property value or a better deal from a public bank which usually gives loans up to 65% of your property value.
Evaluate eligibility and keep documents ready
If you are pledging your property against the loan amount till the loan is repaid, you still need to fulfil certain loan eligibility criteria. To determine your eligibility, lenders consider your age, income, existing financial obligations, repayment and credit history, and the value of your property as per current market rates. Don’t forget that all co-owners of the property will have to confirm their consent to pledging the asset for your loan. You will also have to submit documents to prove your eligibility so it is better to keep them ready in advance. These documents will include your personal documents which contain your identity, income and address proof along with the details of the property.
Choose a better interest rate and shorter loan tenure
When considering a loan against property, consider the most affordable offer for your asset. Choose the right interest rate from floating and fixed interest rates while keeping an eye on market fluctuations and predictions. Take loans from lenders who offer competitive interest rates. A small difference in interest rates may not seem like much but it can affect the loan affordability and repayment in the long run. Finding a nominal interest rate can also help you choose a shorter loan tenure, which can help you reduce your interest costs and get rid of your debt as soon as possible. Shorter loan tenures and higher EMIs can help you plan your repayment easily.
Estimate your expenses for a good repayment plan
Just finding the best interest rate is not enough. It is also important to plan your repayment in advance and have a strategy to repay your loan. Use an EMI calculator to find out the total interest you will have to pay over your loan term and also try to find out what will be the best EMI for you as per your income. Do not forget to take into account your monthly expenses and your existing financial obligations so that the loan repayment does not become a burden for you or does not exceed your capacity to handle.
Read the repayment terms and fine print carefully
Despite being in a hurry or finding the paperwork boring, make sure to read the repayment terms. Read and understand the terms and conditions mentioned in the fine print. Is there an extra fee for foreclosure of the loan? Are there any extra charges for part-prepayment? Reading the fine print can help you figure out if you are dealing with the right lender, spot hidden charges that may affect your affordability, and know about any extra expenses you may have to bear.