The cost of education has increased exponentially in the last decade. Buying a home or paying for a wedding used to be the two biggest financial outlays of an individual. Today, the cost of a professional degree in a reputed university can cost as much, if not more, than buying a property or even a wedding!
With the scary prospect of doling out huge amounts for your child’s education (and you’d want them to have the best), a loan is a practical path to take. A category of loan that is gaining popularity nowadays is a loan against property.
In this post, we take a close look at this type of loan, how to get it and its advantages and disadvantages.
Features of Loans Against Property
It will fall under the category of a medium-term loan. It means that the tenure will be for a few years and not months like a short-term personal loan.
Loan Amount is Dependent on Property Value
If you need more money, it will not be difficult to secure from the lender, providing you can pledge a sufficient value of your property.
High Loan Values
You can get access to funds of up to ₹5 crore and above, depending on the value of your property.
You can choose the tenure of your loan at your convenience. Typically, you can get loans that range from one to twenty years.
You can adjust your EMIs to a monthly amount comfortable to pay based on your income. Some lenders will allow you to pay an interest-only EMI where you pay only the interest component instead of both principal and interest in your EMI.
There is an age limit applicable for such loans. Usually, the loan will extend until you are 65, but it may vary from one lender to another.
Various Products Available
These loans come in the form of different products to suit your needs. Take care to note the property loan interest rate that the lender is quoting. So, you can choose a product that has a favourable interest rate that will keep your EMIs at a minimum.
Loan-to-Value Ratio (LTV)
You can get an LTV ranging between 40% and 80% of the value of the property being pledged. You would do well to expect the least LTV that you can get to fund your child’s education. That way, anything more that you get will be like a bonus.
Eligibility Criteria for Loans Against Property
It is useful to know the eligibility criteria for loans against property. The requirements vary from one lender to another, but here are a few of the criteria that are common to most lenders:
- Borrowers between 18 years and 65 years are eligible (can extend up to 70 years for some lenders).
- Minimum net income for salaried individuals ₹40,000 and ₹3 lakhs minimum annual income for self-employed applicants.
- Minimum work experience of three years for salaried individuals. The company of a self-employed person should have been in existence for at least five years.
- Income tax returns for the last three years to be furnished by self-employed applicants.
- CIBIL score should be 650 or higher.
- There should be bank approval for the builder and property against which the loan is being taken.
You will also need to pledge the following documents of your property against the loan for which you are applying:
- Registered sale deed
- Past deeds chain (link documents)
- Building plan approved by the municipal corporation
- The latest property tax receipt
The lender may also ask for certain specific documents or affidavits, which can vary from one lender to another.
Advantages and Disadvantages of Loans Against Property
There are two sides to every coin, and the same goes for loans against property. Let’s take a look at the pros and cons of loans against property:
- Low-interest rates
- Different modes of payment available (lump sum or as an overdraft)
- No prepayment penalty
- Possible to get high-value loans
- You stand a chance of losing your property if you default on payments.
- It can take a long time for approval.
- You don’t get any tax deduction.
- The lenders may not be accurate in valuing your property.
A loan against property is a good option to pay for your child’s education. However, there are many risks attached to it. Due to a fluctuation in the property loan interest rate, you may find yourself paying much more in interest than you expected.
For a hassle-free loan experience,a Non-Banking Financial Company (NBFC), can provide you with loans at competitive pricing, minimal documentation and digital processing.