Loans against property are loans that property owners avail of against the value of their property. Also referred to as property loans or mortgage loans, loans against property are sanctioned against both residential and commercial properties or land. A type of secured loan, the working of these loans is rather simple: a borrower pledges a property they own as security.

In return, the lender sanctions a loan equal to up to 80% of the pledged property’s current market value. The sanctioned amount is lower for high-value properties. The lender and the loan borrower enter a legal agreement which allows the borrower access to funds for a specific period and at a pre-agreed mortgage loan interest rate. 

However, the agreement also makes it abundantly clear that in the case of a loan default, the loan borrower can sell the pledged collateral for recovery of losses. Loan against property allows property owners to benefit from the equity locked in their property. Further, they also make it possible for loan borrowers to have quick access to substantial funds at nominal interest rates and for a long repayment tenor. 

Property loans have become a very popular financing option these days, especially after loan applicants have started understanding that loans against property are safe if availed of after elaborate financial planning and keeping one’s income and repayment capacity in mind.  Let’s now answer some of the questions that people have about these loans.

What Are the Current Mortgage Loan Interest Rates? 

All loans can broadly be categorized into two categories: secured and unsecured. Unsecured loans do not involve any security or collateral. Lenders sanction these loans after carefully assessing the loan applicant’s credit profile. Unsecured loans, on the other hand, involve collateral. Loans against property are secured loans.

They are backed by either a residential or commercial property or land. Secured loans are low-risk loans for in case of a loan default, the borrower can sell the pledged collateral for the recovery of losses. Therefore, all lenders sanction secured loans at highly nominal interest rates. Mortgage loan interest rates tend to be quite affordable.

In India, one can avail of these loans at interest rates in the range of 8.75% to 14% per annum. Since loans against property are long-term loans, you must secure the lowest interest rates possible. Here are a few simple tips on how you can do so. 

1. Make sure to have a CIBIL score above 750. Such a CIBIL score is reflective of excellent creditworthiness and repayment capacity and will help you convince your lender to extend you the lowest mortgage loan interest rates. 
2. It is also important to pledge high-quality collateral as good collateral offsets the risk for the lender, encouraging them to consider you for the best possible loan terms and conditions. 
3. Maintaining a low debt-to-income ratio or FOIR will work in your favour. Having a high FOIR indicates an excessive dependency on credit and no scope to accommodate new EMIs. A debt-to-income ratio below 40% is considered ideal if you plan to secure a loan at the lowest possible mortgage loan interest rate. 
4. Going for a low LTV ratio loan will help too. Under LAP, lenders sanction up to 70 to 75% of a property’s value as a loan. However, one should always borrow only what they need. Opting for a low LTV ratio loan not only makes loan repayment easy but securing the loan on the best possible loan terms and conditions is also easy. 

Is it True that I can Use the Loan Against Property Funds However I Like? 

Yes, it’s true. Loans against property funds come with no end-use restrictions. In other words, if you get approved for a property loan and once the loan amount is disbursed into your account, your lender will ask you no questions related to how you are spending the money. All you must do is clear your loan against property EMI each month and you can use the funds for business or housing expenses.

What is the Repayment Tenor for Loans Against Property? 

Loans against property involve substantial funds and therefore, it is rather fair that loan borrowers be given ample time to repay the loan. After all, the flexibility to choose a long tenor helps keep loan EMIs economical and the process of loan repayment stress-free. If you are planning to avail yourself of a loan against property, know that the repayment tenor can go up to 18 to 20 years, depending on the lender you choose to go with. Choose your loan carefully and in such a way that loan repayment is not troublesome in any way. 

Final Words 

Loans against property are gaining huge popularity. Today, borrowers realize that mortgage loans are a safe loan option, however only if availed of after careful financial planning. If you are planning to apply for a property loan, we suggest you use the mortgage loan calculator. This handy tool helps loan applicants decide the right loan amount and EMIs for them and saves them from making wrong choices and defaulting on the loan later. This calculator alongside all the other online tools is easy to understand and free to use. So, one must use this calculator to one’s best advantage.