Loan Against Property to Buy a New House or Flat

Buying a new house near a city is still a dream for many people. With the increasing market price of flats everywhere, people rush to own houses. But sometimes, without any financial help or a loan, this dream remains a dream. A loan can help you fulfil your dream of owning your own house. And out of many loan options, a loan against property could be the right fit for you. Instead of using a house loan, you can use this loan to buy a new house. 

Have you also wanted to apply for a loan against property for a long time? Do you want to know how to use it to buy your own house? Want to find out about the interest rates, tenure, and offers that come with it? Well, then read on!

In this article, you will learn about the loan against property, its features and benefits, and how to use it to buy your own house. 

What is a loan against a property, and why is it applied? 

A loan against property, as the name suggests, is financial aid that you receive from a lender by keeping your property as collateral. The lender uses this property as a guarantee to make sure you repay your debt. In return, the lender charges you a rate of interest for a specific period within which you are bound to pay the loan. 

As soon as you clear all your dues and get the green card from your lender, your property is no longer collateral and completely belongs to you. However, if you can’t pay your debt, the lender has every right to keep your collateral. 

Mortgage loans are a good option for borrowers with no security money or shares to pledge. In India, several banks provide these loans at reduced interest rates with multiple offers. 

What are the benefits of using a loan against property to buy a new house? 

There are several benefits to using a loan against property to buy a new house:

• High loan amount:

If you want a lump sum to buy a new house, a loan against property can be the right fit. In many cases, banks allow up to 65% of the total value of your property. This is huge, especially for you to buy a new house. This one is a viable option with ongoing market prices, where property rates are touching the sky. In addition, if the market value of the property you are pledging is high, then the mortgage loan amount will also be high. 

• Eye-catching interest rates:

Banks charge a low-interest rate to borrowers to help them easily pay off their instalments. The interest rate on loans against properties depends on your credentials and what your bank offers. However, the interest rate range is between 8% per year and 25% per year. You will likely get a handsome offer if you have a good credit score and a good loan history. 

• Fast disbursal:

The disbursal period on most mortgage loans is between one and three days. If your bank doesn’t require bulky paperwork and unnecessary processing and verification, your disbursal period will be shortened to a great extent. And if your bank allows for online processing, the amount will be disbursed in less than that amount of time. 

• A long period of repayment:

Since your property is pledged and the loan amount is quite high, banks give you a very reasonable amount of time to repay your loan. The repayment tenure is subjective and mostly depends on your bank, but it can be stretched up to 20 years in many cases. 

• Minimum extra charges:

Charges like your processing fee, statutory bills, stamp duty, etc., are often zero or minimal on loan against property. Banks also do not charge you extra fees or penalties in most cases. The whole process remains transparent so that you can exercise at your convenience. 

Should you use a loan against property to buy a new house instead of a home loan? 

In most cases, you should use a home loan to buy a house instead of a loan against property. Home loans are specially designed to help you buy your own house. On the contrary, a loan against property is used to pledge assets to get funds to invest in your business. 

Furthermore, home loans give twin tax benefits and other perks you won’t get from a loan against property. In a home loan, you can claim the benefit for principal repayment under Section 80(c), but not in the loan against property. 

However, if you can’t avail of a home loan for any given reason, you might prefer a loan against property. Only in this case can you prefer to pledge your assets to get yourself a loan. You also have to keep in mind the downsides that you will be facing, if any. 

Summing it up:

A home loan is ideal for buying or constructing a house, but in some cases, for technical reasons, you can opt for a loan against property. The demerit is that you can’t avail yourself of the perks you would be getting from a home loan. You should contact your bank and talk to your advisor before making such a decision. 

If you have come this far, you are probably hooked on topics like these. If yes, visit Piramal Finance to learn more about home loans, personal finance, investment schemes, etc.