Loan against property is beneficial for an individual to secure liquid cash for personal use. This loan is kind of mortgage wherein the borrower has to submit the property documents to the lender. 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 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 applying for the first time for the loan should be careful while applying 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, 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 property in case of personal loans is not exempted under any income tax act. If the loans opted 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.
Top 10 reasons for availing of loan against property:
- For the expansion of business:
The entrepreneur who has extra property and needs to avail some liquid cash in hand for the expansion of the business or the start of a new business can avail loan against property and utilize the funds for the business purpose.
- For marriage purposes:
The marriage or a wedding ceremony is a very grand function in Indian weddings. Thus, the expenditure required for the marriage purpose is huge. Thus, the loan against property can be utilized.
- For the renovation of the property:
The funds can also be utilized for the renovation of the property as the renovation costs may be too high, and thus the borrower does not need to utilize the funds from the past savings; instead, the expenditure can be converted into installments and accordingly can be repaid for the long span of years.
- For buying a new property:
The borrower can avail 60-70% of the property market value as loans for lending. Thus if a costly property is mortgaged, the borrower can avail loans to buy another smaller property or else in the outskirts of the city in the loan value obtained to buy another property. Also, on the interest repayment, the borrower can avail of tax benefits in case of the amount invested in the property.
- To fund for education:
The borrower can utilize the funds to sponsor a child’s school education or higher education in India or elsewhere abroad. The education can easily be funded if the costs are high, and the amount can be repaid for a span of 15-20 years, depending on the tenure approved by the lender.
- Utilization of funds for the medical expenses:
The funds can be utilized for the payment of medical bills as well. Some medical treatments are so costly that the individual cannot pay the medical bills from the past savings. Also, for the medi- claim policy, the funds can be utilized up to certain limits. Thus, if the medical bills are crossing beyond the limit, the individual may have to borrow funds by mortgaging the property.
- The benefit of lower interest rates:
The interest rates charged for loans against property are far lower than gold loans or personal loans. The interest rates are higher than home loans, but the usage of the funds can be done for personal use as well. The interest rates charged are in the range of 9-14% per annum.
- No restrictions for the usage of funds:
The borrower can make utilization of funds freely without any restrictions. The bank does not ask for any proof, and thus the funds can be used for any purpose. Thus this is a major benefit that the lender can avail in case of a loan against property.
- Tax benefits:
There are no tax benefits for the loan against property, but if the funds are utilized for the purchase of the property, then, in that case, only the interest repayment tax benefit can be availed. On principal amount, there are no exemptions.
- Longer tenure for repayment:
The tenure of the loans is no longer available for the loan against property. Loans can be repaid over 15-20 years. Thus it is beneficial for the borrower during an emergency to avail funds by mortgaging the property documents and then repay loans in installments.
There are multiple reasons why a loan against property can be availed from the bank as the funds can be raised by mortgaging the property and can be repaid over a longer time of span. Also, the borrower can continue the usage of the property while the loans are going on. Only the documents need to be mortgaged to the banks.
