In times of financial need, there are various loans that one can take against financial assets or real estate. Loan against shares, gold and real estate are the more popular ones, where your loan is backed against a collateral to the bank or the lending institution.
These kind of loans can be really large given the fact that real estate can fetch you large sums. Here are a few things that you should note before you take a loan against property.
1) Remember you are mortgaging your property/house
Remember that you should take a loan against property only when you have the capacity to repay the loan.
This is simply because you are mortgaging a property and you do not want a situation where your house is claimed for non payment of the loan. Go for this type of loan when your cash flows are almost certain.
2) Check for LTV with different banks
Remember to check the loan to value (LTV) ratio with different banks. Many banks may calculate the value of the property differently and you may get a different size of loan.
PSU banks tend to cap the loan to value ratio at 65 per cent of the property value.
3) Interest rates may vary
Interest rates may vary from bank to bank. Many banks offer an interest rate that is way below the rates offered by personal loans.
Therefore, borrowers tend to prefer this type of loan. Generally the interest rates tend to vary around 12-14 per cent. Private sector banks may tend to have elevated interest rates.
4) Commercial property may fetch lower LTV
A commercial property may fetch a lower loan to value ratio as compared to an apartment or residential house. Again, the LTV would depend on whether it is self occupied or rented.
As mentioned earlier remember to go in for a loan only when you are in dire need. Loan against property is a cheaper option to take a loan as compared to personal loans.
Remember that credit history would also play an important part when taking a loan.