A loan against home, also known as loan against property or mortgage is a great way to meet any of your dire funding requirements. A loan against property is also one of the most common borrowing instruments among borrowers. This is because of the quick approvals, minimal documentation and convenient repayment options available on these kinds of loans. That said, loan against property is a good option, but before you opt for one, here are some points to remember.
First and foremost, the interest rate:
The interest rates for loan against home range between 10 and 14 percent. This is a little higher than normal home loans or education loans. So it’s advisable to opt for a loan against property only and only when you require funds for a purpose other than education or home renovation. Because even a percent or two less and you could end up saving a considerable amount in the interest you pay. So only opt for a loan against property when not able to receive a loan specific to the purpose you need the funds for.
With a loan against home, you stand to receive anything between 40 and 70 percent of the market value of your home as the loan amount. This can go up to several crores of rupees depending on the value of your house. Keeping this in mind, it’s wise to opt for loan against property only when the market value of your home is high and other borrowing instruments don’t provide you with adequate fund for your needs. Also, with loan against property, it’s not advisable for small loanamounts as it doesn’t make sense putting your home on the line for a small amount. Only when the financial need is very large you should go in for this kind of loan.
When it comes to tenure, loan against home has an edge over other borrowing instruments. Tenures for loan against property can go as high as 15 years, which is much more thana personal loan. This also means you have more time to pay a smaller EMI. If you take out a personal loan, you will have a shorter loan tenure and larger EMI; this could put a strain on your income source and upset your financial standings, whereas loan against property affords you the luxury of a smaller EMI that can be paid over longer periods of time. The only catch is point one, higher interest rates, which mean you pay more in terms of interest.
Unlike other borrowing instruments such as educational loan or home loan, the loan against home doesn’t provide much in terms of tax deductions on EMIs. However, if you take out a loan against property for business reasons then the borrower may apply for tax deduction on interest paid. But for this, the loan taken must be used for expansion of business and there should be some proof to support this claim.
Just like all other loans, the loan against home also invites a processing fee. Most banks charge one percent of the loan amount as a processing fee, but non-banking financial institutes can charge you up to two percent of your loan amount as processing charge. So whilst opting for a loan against property it’s wise to compare these costs as well whilst comparing all other variables before fixing on a particular lender.
All-in-all, a loan against home is the best way to get your hands on a large chunk of money for any other purpose besides home renovation and education. It is a great way to arrive at funds to expand the business and if you’re thinking about one, you should definitely go over the above points with the sales representative of your lender.