Rules to follow for Loan against Property

A loan against property is the lucrative option to fund your business or for immediate personal requirements for a large amount of money. Financial institutions prefer LAP loans for large loan amounts and provide low-interest rates because the property is the most reliable collateral that can be possessed in situations of non-repayment.

It has been established that you should apply for a loan against property to fulfill financial goals and needs. However, before signing the papers, you must consider five fundamental rules thoroughly.

Five Rules to follow for Loan Against Property in India

Assess your financial situation

Are you ready to pay LAP-equated monthly installments for years to come?

You must consider this before applying for a loan against property. As per experts on financial products, your EMI should be between 60 to 65 percent of the net income.

Banks provide loans up to 90 percent of the market value of the property. However, you should consider your income, liabilities, financial commitments before deciding on the amount. 

Shorter EMI tenure

Financial institutions provide long-term loans against property up to 20 years. EMIs for longer tenure for repayment may seem tempting because of less money you are paying in a month. But if you calculate the total money to be paid during tenure, it will be much higher than the principal loan amount.

If it’s possible, keep the loan tenure shorter and increase the amount of EMIs. It will save on interest.

Borrowers who do not have sufficient income for higher EMIs on a property loan can ask for a flexibility clause. This clause can change the EMI amount during later years of the loan period when income increases.

Loan Repayments

Loan repayments should be timely. Delays affect your credit score, and you might not be able to avail of any loan in the future. Therefore, consider your expenses and plan loan repayment before availing loan on the property.

Your loan cost is also inflated with delays because banks and financial institutions charge a penalty on delays in Loan EMIs. This is also embarrassing to get calls from lenders after the due date of installments.

Make timely payment of Loan EMI and save yourself for paying more. You can save the date and automate the process if your lender provides such an option.

Insurance to cover unforeseen circumstances

Take insurance to cover expenses in case of any mishappening during the tenure of the loan against property. Several banks and financial institutions offer terms insurance with the LAP loan.

Check with your loan distributor and apply for the insurance with the mortgage loan. 

Do not skip the insurance. We often take life for granted though we all know how unpredictable life could be. So, to save your property and dependents, take the insurance with the loan and fulfill the financial goals without worries.

Read and understand Terms & Conditions.

Loan agreements are lengthy, and most of us skip points to end them in haste. So please do not treat the loan agreement like some software agreement; read it completely to save unwanted surprises at the time of payments and closure.

Read carefully important sections, including late payment charges, penalty, foreclosure, processing fees, administrative charges, and all other sections that affect payments and property.

Please read the terms & conditions to know document options for KYC, income proof, and property. The application form should be properly and correctly filled.

Availing a loan against property is desirable for low-interest rates, easier to avail large loans, etc. However, borrowers must follow the above-mentioned rules before applying for the LAP loan and avoid surprises during the loan tenure.