Mortgage loans, being a secured financing option, offer an affordable source of credit that can meet an array of financial requirements. In addition, it can eliminate the need of liquidating your savings and using the equity of your property to avail funds against it.
However, before proceeding with a property loan application, the applicant must weigh in certain factors that will influence their financial standing. They must consider aspects like interest rates, repayment tenor, and monthly instalments before applying.
For your assistance, here is a list of factors that you need to heed before applying for a property loan.
6 factors that one should consider before applying for a mortgage loan
Mortgage loan options like loans against property offer help individuals to finance any need that they have, be it personal or professional. However, before applying for one should consider the following factors for a better decision –
- Interest rate
The first point to consider in this regard is the property loan interest rates. Since it acts as a catalyst in deciding the total outstanding, it is imperative to review before proceeding with a LAP application.
Moreover, interest rates on a property depend on factors like property location, repayment capacity, and a borrower’s credit profile. Thus, it is ideal to conduct a thorough market survey to find a loan offer that suits your convenience.
- Loan tenor and EMI
Another point to consider here is the loan tenor. While a longer repayment tenor may reduce the EMI payable, it increases the cost of borrowing. Conversely, the EMI amount is considerably high for a shorter tenor, but it lowers the total interest outgo.
Therefore, it is essential to opt for a tenor that keeps the monthly instalment within your repayment capacity, reducing the chances of any default.
- Tax benefits
Typically, mortgage loans are not accompanied by any income tax benefits, unlike home loans. However, if one uses these borrowed funds for another property purchase, interest paid on that loan is eligible for income tax exemption. As per Section 24(B) of the IT Act, borrowers can get up to Rs.2 lakh as a tax benefit against this loan.
- Additional charges and loan terms
Every loan application includes a host of associated charges that can drive up the total cost of borrowing. The same can be said about LAPs as well. There are different processing, legal, and stamp duty charges that a borrower needs to pay for.
However, this amount is charged separately and not deducted from the loan amount. Hence, these fees can amplify the total outstanding figure by quite a bit if not checked properly. Therefore, do consider these charges before selecting any financial institution to avail a loan against property from.
Furthermore, potential borrowers should also go through the loan terms thoroughly to avoid facing any issues in the future.
- LTV ratio
Loan-to-value or LTV ratio is a common point to evaluate while applying for loan against property. This ratio signifies the loan amount available against the total market valuation of a property. For example, if a lender extends an LTV of 65%, then for a LAP against a property worth Rs.1 crore, you can get a loan up to Rs.65 lakh.
- Credit profile
The credit profile of an applicant plays an important role in the approval of a LAP. Debtors with an unsatisfactory credit score and repayment history may find it difficult to secure required funding, as they are not considered as reliable borrowers.
Apart from these, one should also keep an eye out for pre-approved offers. Extended by leading financial institutions to their existing customers, these offers reduces the hassle of a loan application and saves time. Prospective borrowers can now check their pre-approved offers by submitting their essential contact details.
The absence of any usage restrictions allows mortgage loan borrowers to fund an array of financial requirements. Nevertheless, they can keep in mind the above-mentioned pointers to find a suitable loan offer that meets their needs and convenience.