Key Points to Consider Before Deciding on a Loan against Property

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Banks offer various kinds of loan – home loans, car loans, personal loans and loan against property. A loan against property is a loan given by the lender i.e. the bank against a property that is being mortgaged by the borrower. The loan amount is 40% – 60% of the market value of the property that is being mortgaged by the borrower. It is a secure loan because in case the borrower becomes a loan defaulter and fails to pay his EMIs on time, the bank takes over the mortgaged property and recovers the loan amount plus interest by selling the property. Despite this drawback, most people opt for this loan in comparison to a personal loan because the rate of the interest is comparatively lower, the tenure is longer and the non refundable processing fee is minimal.

It is apparent that loan against property  is a more preferred loan for the above stated reasons. Even so, one should think twice and consider various factors before choosing this type of loan.

Interest rates

The bank charges interest on your principal amount and the length of the tenure. The interest rates given by the bank decide your EMI. Thus, it is important that before you agree to anything you check your interest rates and check its feasibility in terms of repayment. If your interest rate is high, then you might fail to pay the EMIs and you may become a loan defaulter.
Your budget

Budget includes planning a balance between your income, expense and savings. Before you take a loan against property from a bank, be sure to check your finance and budget. Your gross income should be able to handle your monthly expenses and EMI. Furthermore, at the end of every month you should also be able to save money in case of a financial emergency.

Currents standing debts

You should consider your current standing debts since you are mortgaging a property in this type of loan. If you are already currently paying EMI for a home loan or a personal loan, or your credits bills are long, or you owe a huge debt to someone, taking a loan against property is probably not the smartest thing to do. Current standing debts increase your chances of becoming a loan defaulter.

Generic terms and conditions

Before taking a loan against property, understand its terms and conditions. Especially, since you are mortgaging the property. Weigh the pros and cons of this type of loan, understand what will happen to the mortgaged property in case you become a loan defaulter, calculate your EMIs accurately and then compare it with your monthly income. Compare the interest rates of 2-3 banks to ascertain that you are not paying a high rate of interest.

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