Property loans or loans against property (LAP) are loans that property owners avail of by pledging a property they own as collateral. Property loans are backed by collateral, which could be a residential or commercial property or even a piece of land. Under LAP, property owners can avail of up to 75% of their property’s value as collateral.
Mortgage loan interest rates are low due to the presence of the collateral and the money comes with no end-use restrictions. The loan tenor can go up to 20 years, depending on the lender you have chosen.
However, since property loans require loan borrowers to pledge a property they own as security, borrowers must be extra careful while planning to avail themselves of a loan against property.
Here, we discuss some property loan essentials that will help you safeguard your assets and repay your loan conveniently.
Understand About Mortgage Loan Eligibility
If you are planning to apply for a mortgage loan, understand the concept of mortgage loan eligibility. Lenders sanction loan money to borrowers only if they meet the mortgage loan eligibility criteria.
Further, only those who qualify for eligibility requirements get approved for a loan. So, what is mortgage loan eligibility? Every lender judges a loan application against a set of criteria that help the lender assess the repayment capacity of the borrower and their ability to repay the loan without defaulting on it.
These eligibility criteria revolve around factors, such as age, income, credit score, nationality, etc. If you meet all the qualifying criteria, your lender will be more than willing to negotiate on the loan terms and conditions that make loan repayment easy for you.
Being able to avail of these loan terms and conditions will also make it possible for you to repay the loan without defaulting or jeopardizing the safety of your assets at any point.
Make Every Effort to Secure a Low-Interest Rate
Low mortgage loan interest rates translate into low mortgage loan EMIs, which makes loan repayment easy while also minimizing any chances of a loan default.
Securing a low loan against property interest rate is easy if you have an excellent credit score, a stable income and high-quality collateral. Make sure to apply with a credit score above 750. If you do not have a credit score that meets mortgage loan eligibility, it is best to wait and work on your credit score first and then apply for a loan.
Pledging a high-collateral, i.e. anything with high resale value will help reduce the risk for the lender and encourage them to extend better loan terms and conditions with you. Lastly, make sure to show a stable source of income.
Individuals who switch jobs often are more likely to default on loan repayment than people who have a stable job and earn a stable income.
Make Prepayments Whenever Possible
If you have availed yourself of a property loan, make sure to repay the loan as quickly as possible and become debt-free. This will help you avoid any chances of a loan default. To become debt-free before the agreed period and safeguard your assets, try making prepayments whenever possible. Pay an extra EMI whenever you can.
Use money from promotions, hikes, FD maturity, etc., to make a lump sum payment. This will not only help you repay your loan before the agreed period and safeguard the safety of your property, but it will also help you save on the interest payout on your loan and reduce the cost of borrowing funds.
Opt for a Loan Against Property Balance Transfer
Lastly, if you are finding it challenging to repay your current loan against property, one of the things you can do to enhance the affordability of your loan and make loan repayment easy so that your pledged collateral or asset remains safe is to opt for a loan against property balance transfer.
Lenders should opt for a property balance transfer when they find another lender willing to refinance or re-sanction their loan at a lower rate of interest. This makes loan EMIs affordable and loan repayment easy, thereby completely minimizing any chances of a loan default.
However, do keep in mind that balance transfers attract a fee and therefore, must be opted for after a thorough cost-benefit analysis.
Final Words
Loans against property are one of the most secure ways of raising funds. However, one must avail of these loans only when one is financially ready. Further, individuals repaying a loan against the property must set aside an emergency fund to make sure they can easily navigate financial difficulty if they ever find themselves facing such a time.