Loan against property is an amount borrowed from the lender in the mortgage of the borrower’s property possession. The borrower has to keep his/her property documents in possession of the lender to get some liquid cash in hand. The benefit of the loan against property is that the borrower can avail higher credit limit against the property to buy another property or make use of the liquid cash obtained to renovate the house, business expansion, personal use like education, marriage purpose, etc
Also, there is an advantage that the borrower can avail higher credit limit against mortgaging loans as there is surety for the lender so as to get the amount recovered by the seal of assets. Also, if the borrower has a lower CIBIL score, they can still opt for higher loans as the property is mortgaged to the lender, so the lender may not be very much concerned about the recovery and can easily recover the credit amount being taken by the borrower.
8 Myths about the loan against property:
A High rate of interest means inflated monthly installments:
The rates charged by the borrower are high in case of a loan against property. Thus higher interest rates being charged means higher the monthly equated installments being liable to be paid to the customer. In case of higher interest rates, the bank can extend a higher duration of a moratorium against the loan re-payment.
Pre-payment always brings in penalty charges:
Pre-payment is usually not chargeable with most of the banks; thus in previous years, many banks used to charge penalties against pre-payment. In order to save the amount on interest re-payment, the borrower can re-pay the installment in a quick and easy way.
Loans with the lowest interest rates are amazing:
During the current times, the repo rate set by the RBI is decreasing gradually. Thus the interest rates being charged by the bank for the lending purpose is also declining, while the fixed deposit interest rates also are declining. There are various banks that charge comparatively higher or lower interest rates for the customers; thus the borrower should decide from which bank the borrower can lend the money so as to enjoy minimal interest rates on the loan being borrowed.
Fixed rates are better than floating interest rates:
This is typically a wrong concept which the borrowers may have in their minds. It is always better to opt-in for floating interest rates rather than the fixed interest rates. The reason is that as the repo rate of the bank is declining, the interest rates are bound to fall down rather than increasing. Hence the borrower, after getting the approved loan, can opt for floating rates which can help the borrower save money on interest repayment as compared to the estimate given by the lender against the interest repayment.
Banks are not concerned about the applicants status of employment:
Banks may sometimes do the background verification check of the borrower in case of anything found to be suspicious before the pre-approval of the loan. Also, the bank may ask for the employment letter from the borrower as well as the salary slip so as to keep a track record of the employment status of the borrower. This proof carries importance as the banks are very much concerned about the credit being given to the borrower and a stable job prospect is always carries importance as it brings confidence to the lender against the borrower’s re-payment capacity, also if the borrower is employed in any kind of hazardous factories/sites like coal mines, tunnel works, hazardous chemical factories. As in that case, the bank may require the guarantor for the loan so as to avoid any risk of under-recoveries.
Property insurance is not the responsibility of the borrower:
Most of the property owners don’t buy insurance for their residential/commercial property. The property insurance provides coverage against fire, floods, or any untoward incident which can lead to the loss of life and property. At least in the case of commercial property, it is highly recommended that the business person is dealing with flammable objects or deals with hazardous ones. As in the case of the fire, the loss that happened to the commercial property can be claimed from the insurance company in order to protect from the closure of the business.
Opting for the home loan in case of the tax benefits:
The buyers can avail of the tax benefit in case of the loan been taken, thus help in savings by investing in the property and can help gain valuable assets, thus saving from the drain of the funds.
CIBIL score helps get loans approval easily:
This is another wrong thinking about the home loan process. As in the case of a good credit score, it does not guarantee the success of the home loan approval. Along with the CIBIL score, it is mandatory that the applicant has sufficient balance into the bank account and the borrower should have an appropriate salary to meet the eligibility criteria for opting for loans.
Thus we conclude that the borrower should not have any wrong assumptions about the loan terms and conditions. Also, the borrower should ask for all the queries about the loan process and ensure all the terms & conditions as explained by the financial institution executive should be mentioned in the clause as per the information provided.