If you suddenly need more money, a loan against property is a good option. To avail of this type of loan, you can use your residential or commercial property as collateral.

You can borrow money by mortgaging the property. In this way, you get the money you need without selling the property. In this type of loan, you can take a loan of a higher amount than an unsecured loan. Before you
decide to take a loan on the property, Atul Monga, CEO and co-founder of Basic Home Loan, is telling you some important things about property loans. Let's know about them.

This is a secured loan.

A loan against property is a secured loan in which you use the property as collateral. This provides security to the lending bank and this is why such loans are available at a lower interest rate than unsecured loans. However, if the borrower is unable to repay the loan, he may lose the property. So before taking a loan against your home or commercial property , think carefully about
your loan repayment capacity.
 

valuation of property

The lending bank evaluates the property and gives the loan on this basis. The loan amount depends on many factors such as economic conditions, interest rates, local market trends (fluctuation in property prices), etc. For example, if the property price falls drastically, there may be negative equity and the borrower may have to pay more than the current value of the property.

Purpose of the loan

You must have a clear reason for taking a loan against property. If you want to expand your business, buy a new property, or you need money for your personal needs, you should
decide to take a loan only after deciding your financial goals. Understand both the benefits and risks of taking a loan thoroughly. Consider whether the loan will have a positive impact on your situation. If you are not sure about repaying the loan, then think about some other option like an unsecured loan.

Cost

There are many types of charges in secured loans too. The person taking the loan should be fully aware of these. These include - processing fees for loan applications, valuation fees for the valuation of property prices, legal expenses for documents and verification, etc. Apart from this, other expenses include - stamp duty imposed by the government on legal documents, registration fee for recording, and mortgage of property and in some cases, property insurance may also be necessary.

Ability to repay the loan

Income, debt-income ratio, spending habits, emergency preparedness, etc. are some of the factors that affect your loan repayment capacity. Debt income ratio
indicates the difference between your monthly income and total loan repayment, this ratio should be low. Many other expenses also affect the loan repayment capacity such as payment of other loans, living expenses or business commitments, etc. So consider that your loan repayment capacity may be affected if an emergency expense arises. Make a contingency plan before taking a loan.