Loan against property comes in handy when you seek a competitive rate of interest on large borrowings and longer repayment tenure of close to 15-20 years. Further, there are few more considerations that should be made while opting for a loan against property or LAP. So, just by mortgaging your commercial or residential property and retaining ownership as well, you can secure funds against the possession.
Here we discuss the six facets to loan against property that need your consideration:
Amount Of Loan Being Sanctioned:
At the most banks provide 50-75% of the mortgaged property's value as loan and further, there are considerations by financing institution before the final disbursal such as the age of the premise being kept as collateral with the financier, location, infrastructure etc. And based on customer's capabilities such as credit score, debt to income ratio and repayment potential, the last call is made for the loan sanction amount.
For the loan against property, usually, the disbursal time is anywhere between one to three weeks.
For the loan against property as this borrowing type is backed by collateral, the borrowing cost is on the lower end i.e. starts at 9.65% per annum. Personal and gold loans, on the other hand, come at a higher cost.
Another advantage that we get from this borrowing is that a higher loan repayment tenure wherein the customer in order to lessen his monthly outgo as EMI towards loan re-payment can choose a tenure of up to 30 years. And also, in order to reduce your total outgo towards the loan, you can choose to pre-pay the loan in a case at any time you have a surplus with you. But herein you need to take note of pre-payment charges as well.
Processing Fee And Prepayment Charges:
Similar to other loans there is a processing fee of 2% of the loan amount in case of LAP. Also, there is a pre-payment penalty in case the borrower secures funds at a fixed rate of interest while for those lent at a floating rate, there are no such penalty implications.
Funds Secured Through This Source Can Be Put To Any Use With No Restriction Whatsoever:
Except for speculative or illegal transactions, the funds secured a loan against property can be parked for any of the financial goals such as to meet some overdue EMI payments, for children's higher education or expansion or renovation of home or for business dealings.
Tax Benefits On Loan Against Property:
Herein before talking about tax benefit on such a loan type, the end use for which the funds have been deployed is crucial. Under Income-tax Act section 37(1), the interest, as well as associated cost, can be claimed as business expenses. Also, if the loan is put to fund a second house property, then interest repayment can be claimed up to a maximum of Rs. 2 lakh in a financial year as per section 24(b).
But, herein unlike home loans, one cannot claim tax benefit for the principal repayment.