A loan against property, also called a mortgage loan, is one of the best options for availing funds when needed. The loan has a low-interest rate, offers a high loan amount and can be availed for a longer tenure. That is why the loan is preferred over unsecured loans. If you own a property and are looking to avail funds, you can mortgage the property for a mortgage loan. However, before you avail mortgage loan, here are five rules which you should keep in mind –
Rule number 1 – The loan amount should be what you can afford and not what you can get
Loan against property is a loan under which you can avail a high amount of loan. The loan is given against the value of the property which you mortgage. Usually, up to 75% of the property’s value can be taken as a loan. Since your property might be worth lakhs, you can get a substantial loan. This fact, however, should not tempt you into borrowing more than you can afford. Restrict your loan to the amount which is absolutely essential in meeting your financial liabilities. Though you may avail a higher amount, judge whether the amount is affordable for you or not.
Rule number 2 – The loan EMI should not eat into your monthly income
When we talk about the affordability of the loan, besides the loan amount, the EMI also holds importance. As a thumb rule, the total EMI on your loans should not be more than 50% or 60% of your net monthly income. So, if you have existing loans whose EMIs you are paying, ensure that the EMI of your loan against property, together with other EMIs, do not cross 50% to 60% of your net monthly income. If it does, choose a lower EMI to restrict the EMI outflows and prevent the loan EMIs from eating into your income. If they do, you might eventually fall into a debt trap coming out of which would be difficult.
Rule number 3 – Always read the finer details
When availing a loan against property, most of you concern yourselves with the amount of loan which you can avail, the available loan tenure and the interest rate. The other finer details of the loan are given a miss. These details are important as they include the charge structure of the loan, penalty for late payment of EMIs, etc. You not only pay the interest on the loan, you also pay the charges associated with it. So, read the finer details of the mortgage loan properly to understand the underlying charges. This would prevent you from being blindsided when a charge is made to your loan account.
Rule number 4 – Opt for shorter repayment tenure
Mortgage loans are available for longer tenures going up to 15 years. This makes the loan attractive for individuals who want to pay low EMIs on the loan. However, when choosing the tenure, don’t let the EMIs be the only deciding factor. When you choose longer tenure, you end up paying more in interest repayments. What you actually save on lowering the EMIs is lower than what you actually pay on the interest payouts. So, as a rule, keep the loan tenure as short as possible. Short tenures would result in little higher EMIs but the underlying interest payments would also be lower. So, opt for shorter tenures and try prepaying the loan if you have surplus funds anytime during the repayment tenure. Prepayment would reduce the loan burden and consequently the interest payments as well.
Rule number 5 – Shop around
Do you know how many lenders offer a loan against property? Too many to count! So, don’t hurry in choosing the loan. Take your time. Shop around for the available loans, compare the interest rates, the underlying charges and the applicable EMIs. There are online EMI calculators offered by loan aggregators which let you calculate the potential EMIs of different loans at once. You can then compare the EMIs of different lenders and choose the lender whose interest rates are the lowest.
These are the basic thumb rules which you, as a borrower, should follow when availing a loan against property. If these rules are kept in mind, the loan would become affordable and be repaying it would not put a strain on your finances.