Secured loans are loans backed by collateral or secured. The loan borrower pledges an immovable asset and gives the loan borrower the right to sell this asset for the recovery of losses in case of a loan default. Home loans are a type of secured loans. Another type of secured loan that has become immensely popular over the last few years is the loan against property.
What Is A Loan Against Property?
Individuals who own a residential or commercial property or even land can leverage its equity, pledge it as security and avail of a loan against it. These types of loans are called loans against property or property loans. The borrower pledges the property they own and once they do so, the lender places a lien on the property, forbidding the loan borrower from selling the property until they have cleared the loan. However, the loan borrower can use the property to suit their needs.
Once the borrower has repaid all loan EMIs and cleared the loan, the property gets transferred back into the borrower’s name. After this, the lender has no legal right over the property.
There was a time when loans against property were considered a risky choice. However, scepticism about these loans has mostly disappeared. Below, we look at the features and benefits that make loans against property a popular choice among loan borrowers.
Loans Against Property: Features & Benefits
1. Low Interest Rates
Loan against property interest rates start from 8.50% per annum. Home mortgage loans can be availed of at very low interest rates. In other words, residential properties generally help borrowers secure a better or lower mortgage loan interest rate than commercial properties or land.
In any case, loan against property interest rates for both residential and commercial properties tend to be quite economical compared to other loan options available in the market.
2. Substantial Loan Amount
Under loans against property, borrowers can borrow up to 75% of the pledged property’s current market value as a loan. The LTV ratio is obviously higher for low-value properties than high-value properties. There are only a very few other loan options that allow borrowers to borrow such substantial amounts at such low interest rates.
3. Long & Flexible Repayment Tenor
Lenders understand that since loans against property involve substantial loan amounts, it is important that loan borrowers be given sufficient time to repay the loan comfortably. Borrowers can choose to repay their home mortgage loans or commercial property mortgage loans over a period extending up to 18 to 20 years.
4. Zero Restrictions On Fund Usage
Most of the loans come with end-use restrictions. For instance, home loan funds can only be used to buy a residential property. Car loans can only be used to buy a car. Loans against property funds, however, do not come with any end-use restrictions.
One can use the loan money to buy another property, pay a child’s college tuition fee, start a business, etc. Lenders never concern themselves with how you are paying the loan money.
5. Tax Benefits
Depending on how you use the loan money, you can become eligible for a loan against property tax benefits. For instance, under Section 37 of the Income Tax Act, one can claim tax benefits on expenditures incurred on one’s business through a property loan.
Suppose the loan funds are used to buy another home. In that case, borrowers can claim a loan against property tax benefits on payments made towards the repayment of the interest component of the loan under Section 24b of the Income Tax Act.
Conclusion
In conclusion, loans against property offer many benefits and are an entirely safe loan option if you avail yourself of funds after carefully assessing your repayment capacity. Borrowers must also always use the property loan EMI calculator to plan their repayment strategy and the loan against property eligibility calculator to calculate the loan amount they are eligible for.
The loan against property balance transfer calculator can help you assess if a balance transfer would indeed be the right choice for you, that is, if you find a lender willing to refinance your loan at a much lower rate of interest than the interest rate at which you are currently repaying your loan.
