A loan against property is the perfect way to arrange funds to meet any of your urgent needs. It gives you a sizeable loan amount that is normally more than enough to cover things like your child’s further education aspirations, their marriages; the amount could also be used to expand, save or start a new business or to cover any medical emergencies. However, before you opt for such a financial aid, remember to give some thought to the following aspects.
1. LTV ratio of a loan against property.
LTV stands for Loan to Value Ratio. It is simply the amount of loan a lender is willing to provide you based on the value of your property. You should keep in mind the LTV of the loan before opting for one so you understand the amount of funding you stand to receive ongoing in for this attractive financial aid. Most lenders provide up to 60% of your property’s value as the loan amount.
2. The processing fee for the loan.
Just like a home loan, a loan against property also requires you to pay a processing fee. And just like a home loan, the processing fee for a loan against your property is generally around 1 or 2 percent of the loan amount. This can work out to be quite a substantial amount and therefore it’s always important to go over the processing fee levied by different lenders to see which one will cost you less.
3. Property eligible and the conditions.
You can put up both residential and commercial properties up for a mortgage. Again, these properties can be self-occupied or ones that you’ve rented out. However, the LTV can change with different types of property. For example, your own home will get you a better LTV in comparison to a home that you’ve rented to a tenant. The logic behind is that you’re more likely to repay a loan that’s taken on your place of residence than the one you do not live in and that’s just getting you a source of income.
Moreover, the property should be in your name. If it has any co-owners, they should give you consent to apply for the loan. There should be no disputes on the property and all the paperwork should be on hand when demanded.
4. Keep insurance in mind.
Debt is a difficult thing to handle, even more so for your loved ones to do so in your absence. Therefore, to ensure the burden of debt doesn’t fall onto the shoulders of your family members, it’s worth to get a simple term insurance plan that will cost a very minimal amount but will help your family members pay off the debt, even without you or your income.
5. Remember to read the fine print and consult a financial expert.
It’s of utmost importance that you go through and understand the legal terms and conditions of a loan against property. For most of us, it’s hard to completely understand the intricacies and if this is the case with you, it’s worth your time and money to get your doubts cleared with a financial expert before you sign along the dotted line.
Keep these 5 points in mind and you should end-up with a smooth loan against property experience.