A Beginner’s guide to loan against the property

The loan against the property is when the borrower needs to mortgage the property documents to the lender. The beginners are the ones who are newly applying for the property and have never opted for loans before. The buyer can opt for the loan against the property for the residential as well as commercial property. The loans can be availed up to 60%-70% of the property value. The loan against the property helps the borrower utilize the funds for a personal loan and buy the new property, either commercial or residential. Private financing funds can be used for marriage purposes, travel purposes, business loans, expansion of the property, and renovation. The borrower who is the first time applying for the loan should be careful while applying for the loans as the lender may put some misleading clause into the agreement, leading to further exploitation of the borrower. When applying for the loan, the borrower should thoroughly read the terms & conditions of the document and, if agreeable, then only should sign the agreement.

The borrower should check for the moratorium for which the loan is opted for and the interest rate being charged to the borrower by the lender, penalty being charged for in case of the delay in payment of the loan installment, processing fees being charged for the loans. The borrower should verify the prevailing rates of the installments being charged by the lender for the loan against the property. The rates & the processing fees being charged by the lender can be compared on multiple finance-related websites. Accordingly, the decision can be taken for opting for loans from the leading financial institutions based on the lower charges, whichever the lending financial institution charges. The banks typically charge interest rates of 12-14% to the borrower for the loans being opted for the loan against property. The loan against the property in case of personal loans is not exempted under any income tax act. If the loans opt for buying the property, then only the income tax exemption can be claimed on the interest being paid to the lender. On the principal amount, tax exemption cannot be claimed.

Following are the guidelines applicable to the beginners applying for the loan against the property:

• Check all the documents before using:

While applying for the first time, the borrower may not be aware much about the conditions applicable while applying for the loan and during the process of repayment of loans. The borrower should verify all the necessary terms & conditions being applicable before signing the documents. Whatever verbally is committed by the financial institution executive, the same should be written on the terms & conditions page of the loan agreement. The borrower should check for the charges being applied for processing the loans, interest rates being charged to the borrower, moratorium for which the loan is being extended, the due date of the monthly installment, and the penalty case of delay in payments. The interest rates can also be negotiated in case of overcharging of interest by the lender.

• Check for eligibility of the loans:  

The borrower needs to know the eligibility criteria for the loans being applied. The eligibility criteria include the property’s requirement with clear titles, government identity proofs, income tax receipts, CIBIL rating statement of the borrower. Also, the loan applicants should know that there should not be any co-owner being there to mortgage the loan against the property. Also, the property should not be based on illegal encroachments, unoccupied buildings, or a dilapidated building. The borrower should also verify the exact property valuation is going on in the market, or else the ready reckoned charges being applicable in that locality. According to the valuation, a maximum of 60-70% of the loan can be considered a credit for the loan against the property.

• Check for the affordability of the repayment of the loan:

In spite of getting the loan approved from the bank, the borrower should analyze the exact need for the loan and repayment ability according to the monthly salary. The borrower should consider the monthly installment, which needs to be repaid to the bank. Suppose the borrower finds that the monthly liability of the EMI is too high. In that case, the borrower should pay for a higher down payment & opt for the lower amount of the loans, or else avail lower amount as and how required and should not go for the total availability of the credit as per eligibility of the bank. Also, other eligibility factors include like income tax returns statements, CIBIL ratings also carry an importance.

• Check with the feedback of the lending financial institution:

The borrower should check with the lending financial institution’s feedback regarding the overall experience of the borrower. Some financial institutions may be carrying out malpractices by cheating the borrowers by charging some hidden charges to the borrower. In case of the delay of payment, the borrowers may be harassed by the lender, who may be like threatening or bullying the borrower. The RBI has put some restrictions on the lending financial institution to avoid malpractices and should go through the legal way to recover money from the borrower.

Conclusion:

Hence, the borrower should verify all the requirements while applying for loans, like regarding the documentation process of the loans, monthly installments being liable to be paid, the due date of the installment every month, the penalty is charged delay in payments. Etc. Also, the borrower should check with the overall experience of the other borrowers regarding availing loans.