Financial emergencies can occur anytime, and your property can be your saving grace! Lenders offer a lower interest rate for a mortgage loan than personal loans. However, before you start applying for a Loan Against Property, you need to be aware of the pros and cons of this loan.
Advantages of Mortgage Loans
Lenders favour a mortgage loan over an unsecured loan (one without a mortgage) since they can sell the property to realize the loan amount. Here are some additional advantages of a mortgage loan:
Leveraged for Both Personal and Business Purposes
Here are some of the different purposes for which you can opt for a mortgage loan:
New business options or expansion of existing business
Home renovation or improvement
Vacations
Higher education for children
Consolidation of debt
Such loans are processed much faster than unsecured ones since the loan is backed by collateral or guarantee. The best part is that you can also take a loan against rented property, already generating income for you. Most importantly, you remain the owner even after offering it as collateral or security.
Faster Sanction of Loan
A mortgage loan has a lower processing time, provided you have all the relevant property documents and the required address/identity proof.
Before you apply for this loan, check your monthly cash outflow using the mortgage loan calculator India. You can choose the EMI amount and tenure that suits your budget. This is vital to remain fully aware of your loan repayment options.
You will need the property title, municipal tax receipts, income proof (like Form 16/Form 16A), Aadhar card, and PAN card.
Competitive Interest Rates
The interest rate charged for your mortgage loan will depend on your credit score. For credit scores over 800, you can get loans at rates between 9.25% to 9.75%.
Check if the lender is offering a floating or fixed rate of interest. The advantage of a floating interest rate is that EMIs are cheaper when interest rates are falling since your EMI comprises both principal and interest.
Longer Repayment Loan Tenure
You can get a mortgage loan with a tenure of up to 20 years. With a higher credit score, the bank will offer you a higher loan tenure.
Other factors that decide the loan tenure include income, age, and further details.
Higher Loan Amount
A higher credit score and a mortgage loan application ensure a higher ceiling for your loan. Your LTV (Loan to Value) ratio can range between 75 to 90% depending on the lender. Guest posting sites Each lender has an upper limit for LAP. Other factors deciding the final loan amount include repayment capacity, property value, and more.
We next explore the cons of a mortgage loan.
Disadvantages of a Mortgage Loan
Even though a mortgage loan offers some amazing benefits, here are some disadvantages:
Losing Property Ownership
You may lose your property if you default on paying your monthly EMIs. The lender will sell your property to realize the loan. You should keep an emergency fund equal to 6 months of EMI to pay your dues on time, even if you face temporary financial difficulties.
No Tax Benefits
While you get tax benefits under the Income Tax Act for home loans, there are no such benefits for Loans Against Property since you are pledging your home to get this loan.
Loan Limits due to LTV
The loan is decided after the valuation of your property and the LTV ratio. If your property is valued at Rs. 80 lacs and the LTV is 70%, then the maximum loan you can get is Rs. 56 lacs. You need to pay the balance of Rs. 24 lacs.
Conclusion
Whether you want a home makeover or fund your children’s higher education, a mortgage loan can be a smart decision. Check your cash flows before you opt for a LAP. Ensure you are eligible and also have the required documents.
Get the best deals on LAP from PNB Housing Finance, and realize your dreams.