A Home Loans Consumer Report showed that approximately 46% of property buyers prefer apartments in the Rs.30 lakh-Rs.1 crore price range in 2021. This can be attributed to the demand for more rooms to accommodate “work from home” facilities, supported by a lowered loan against property interest rate.
On the other hand, LAP delinquency rates are also rising, and as of August-end, 2020, it stood at 3.96%, said the TransUnion CIBIL. To curb the rise of non-performing assets, lenders tend to reject applications displaying any risk of default.
To avoid such a fate for your application, consider the following factors before getting a property loan this year.
Avoid over-borrowing
A majority of lending institutions offer LAP or home loan worth up to 75% of the pledged property’s current market value. With such high funds, it is easy to get swayed and opt for the maximum available amount. However, borrowers must remember that their loan EMIs constitute a major interest component, which increases with rising principal amount. This is why individuals need to thoroughly inspect their requirement and opt for the exact amount to avoid unnecessary interest payment.
Inspect your income and expenses
A borrower’s disposable income is a primary indicator of his/her repayment capacity. Before opting for a loan against property, examine your monthly income and existing financial liabilities. Accordingly, apply for loan against property with EMIs ensuring a low debt-to-income ratio, preferably below 40%.
Overburdening yourself with a very high loan amount will mean risking default. This can bring down your CIBIL score and even result in property confiscation, making future fund approvals difficult.
Cross-check your eligibility
HFCs prefer borrowers with a healthy credit profile and a stable income source, preferably a long-term job or profit-making business. Applicants can accordingly work on their eligibility by making timely repayments and maintaining a 750+ credit score. Having an excellent income and a high CIBIL score also gives applicants the power to negotiate for a lower loan against property interest rate. Note that lenders are more likely to sanction loans to younger eligible applicants since they have the scope for a longer tenor. Meeting and providing all these criteria for property loan eligibility and documents, including property ownership proof, will ensure speedy approval and loan transfer.
Pay attention to the repayment tenor
If you want a higher loan amount without affecting your affordability, opt for a longer. This will facilitate smaller EMIs. However, it is advisable to opt for the shortest tenor available depending on your repayment capacity to enjoy maximum savings on loan against property interest rate.
To help them determine a suitable tenor according to their requirements, potential borrowers can use a LAP or home loan EMI calculator.
Ensure high property quality
Financial institutions are more likely to invest in a property that has a high resale value. This property value is based on its location and access to necessary services. For instance, a property located in an area with extensive rail and road network, nearby airport, and easy access to hospitals, shopping malls, grocery stores, etc., will have a higher resale value compared to that situated in a rural location.
Compare lenders
With so many creditors promising several offers on loans against property, do not forget to compare them. Check for loan against property interest rate and other policies like available tenor, eligibility requirements, repayment options, and application process, besides maximum loan offered. Also, enquire about additional or hidden costs, including processing, documentation, and pre-payment charges, if any.
Plus, note that the Income Tax Act does not have provisions for tax exemptions on interest rate of property loans. If you aim to use these funds to purchase or construct a new house, apply for housing finance to enjoy home loan tax benefits on interest payment.