A loan against property (LAP) is a secured loan that salaried people, self-employed individuals and business owners can opt for. They can apply for a LAP by pledging any residential or commercial property as a mortgage.
Borrowers can repay this loan against property as Equated Monthly Instalments (EMI) throughout a fixed tenure that the bank/NBFC sets. This article enumerates the factors that help an individual repay a loan against property efficiently.
Things to consider to repay loan against property smoothly
To make it easy to repay loan against property, borrowers should calculate the monthly EMI and opt for an amount they can afford to pay. Besides this, one must keep the points given below in mind:
- Make a down payment of 20% while applying for LAP
Like every secured loan, lenders do not provide the entire amount as a loan against property. Most banks and NBFCs strictly provide only up to 80% of the property value as an LAP. In these instances, borrowers must add 20% of the amount from his/her pocket for the total amount.
Certain banks or NBFCs offer scope to borrowers to choose their down payment. However, to manage one’s debt efficiently, one must make a down payment of 20% or above if possible. A higher down payment shows that the applicant is financially stable and able to afford the loan. This lowers his/her property loan interest rates and the EMI amount.
- Be well aware of property valuation
Lenders consider the market value of the property that an individual pledges as a mortgage. Therefore, before applying for a loan against property, a person must calculate the valuation of the property.
He/she can use area converters and other calculators available online to know the loan amount he/she is eligible for. Having a clear idea of one’s property valuation helps an individual get a fair loan amount as per market standards. This will also help borrowers be safe from the unfair pricing of the property.
- Property ownership
A borrower must know that lenders only provide financing against property that is free from any dispute or liabilities. Before applying, it is wise to check the valuation of the property to mortgage. There are many online land area calculators one can use for this purpose.
Banks and NBFCs will refuse to approve loans against properties under legal or financial disputes. Even if any lender approves such a loan application they might charge a high interest rate. It is a good idea to avoid purchasing disputed properties as it’s difficult to prove their ownership.
For proof that one’s property is clear from all kinds of disputes, applicants need to possess documents like its title deed, agreement copy, tax receipt, etc. If the property belongs to joint owners, one must also furnish a letter providing consent from all owners for a loan against the property.
- Comparative analysis of interest rates of various lenders
After a person shortlists a property, he/she must consider calculating the market value of the property compared to its land area. He/she can evaluate this manually or use a property loan calculator available online. This is a free tool that can help a person decide on the suitable LAP amount instantly leaving no room for error.
Following this, an applicant should compare offers from different financial institutions. This will help them decide which of the offers carries better interest rates and other terms. With this knowledge, one can make an informed decision on which bank or NBFC to opt for.
Several banks and NBFCs provide pre-approved offers for their long-standing customers. One can check their eligibility for pre-approved offers by visiting the online portal of their respective lender and entering basic details like name and contact details.
- Consider making repayments more frequently
After an individual opts for an LAP, he/she must create a plan to repay the loan against property EMIs on respective due dates. Failing to do so will result in penalties that increase their outstanding payment.
Furthermore, irregular loan repayments can also make an individual’s credit score drop. This paints a poor image of the borrower in the eyes of new lenders. For future loan applications, lenders may consider the person as financially undisciplined. This could lead to rejection of loan applications and higher interest rates.
Therefore, borrowers must apply for a loan against property for the amount which they can easily pay in the long run. Exceeding this amount might overburden their finances and they would miss their repayment dues.
- Opt for lump sum payments with additional income
One of the best ways to repay a loan against property quickly is to use all extra earnings for loan prepayments. An individual can implement their bonus, tax refund or income from stocks and mutual funds to meet this end.
One can add this amount with EMI and pay their monthly obligation as a lump sum. This will help borrowers to lower their monthly repayments for LAP for the upcoming months. Eventually one can complete their debt repayments before tenure ends.
- Refinancing a loan against property to get better terms
This tip works for individuals who can bear an increase in EMI repayments and manage their ongoing finances. After repayment of a substantial loan amount, one can opt for a loan refinancing, which allows borrowers to negotiate for better terms.
This will help an individual repay his/her loan against property quickly. Many lenders offer competitive interest rates on an LAP after opting for the refinancing facility. If one cannot avail this facility from his/her existing lender, another option is to opt for property loan balance transfer.
- Go for an extensive loan against property repayment tenure
Very often, borrowers tend to choose shorter tenure to repay loans against property and get rid of their debt. By doing so, they end up making their EMIs too expensive. This acts as a burden on their financial health and it becomes tough for them to focus on savings and other expenses.
On the other hand, a longer tenure distributes the EMI into small parts. This makes it more convenient for borrowers to repay their debt without fail and manage their living expenses. However, one must fulfil all of the mortgage loan eligibility to get a long tenure for a loan against property.
Besides the above points, one must also consider looking out for processing fees and other additional charges. Following these, one can repay a loan against property smoothly and become debt free while maintaining their credit score.