Tuesday, January 26
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Extract Maximum Benefits out of Your Property Loan

A loan availed against your property can help meet liquidity challenges for your personal and financial business needs. However, just getting a property loan is not enough. The idea is to get the most affordable loan that suits your needs the best.

Property Loan

The loan amount sanctioned to you against property is calculated as a certain percentage of the market value of your property. However, there is no restriction as to how you use the loan amount. Even then, you do need to follow certain guidelines to enable you to help you extract the maximum benefits out of your property loan.

Here are some tips to help you sail through fruitfully:

  1. Take a Long Tenured Loan and Prepay Whenever You Can

A loan against property should always be opted for a long-term repayment duration. A shorter repayment tenure would increase the risk of default due to a higher amount of monthly EMI. Also, whenever you have spare funds, try to prepay your dues to reduce the repayment burden.

  1. Avoid Over-Leveraging

LAP is availed against the mortgage of your residential or commercial property at low-interest rates. Due to this reason, many borrowers often end up over-leveraging, which, in turn, increases the risk of loan default. This puts their property at high risk of being auctioned out by the lender to retrieve their loan amount. Hence, it is essential to make sure that you borrow only what is required and what you can actually repay without overburdening your finances.

  1. Compare the Lenders on Various Parameters

When choosing your lender for LAP, do not restrict your search and decision to the rate of interest being offered. A lender offering the lowest rate of interest might not be the right choice as per your specifications. You should consider other factors too before deciding whom you want to take the loan against property from. These factors are:

  • Processing fee.
  • Prepayment or foreclosure charges.
  • Late payment penalty charges.
  • Loan to value ratio.

Tax Benefits that you can avail on loan against property

Apart from the above benefits, there are certain tax benefits which can be availed on taking a loan against property depending upon the use you’d want to put it to. The tax benefits for a loan against property include:

  • The Indian Income Tax Act, under Section 37 (I) entitles an individual/company to gain tax benefits on the interest amount of their loan against property. However, this exemption is permissible only if the funds are used for business purposes and can be claimed as business expenses under the afore-mentioned section.
  • Under Section 24 of the Income Tax Act, if the loan amount has been used for financing a new home, then salaried individuals can avail a tax benefit on the interest paid on their loan. However, the maximum benefit that can be availed under this section is up to an amount of 2 lakhs.

Closing Thoughts

Before closing your deal for a loan against property, ensure that you have submitted all required documents. Also ensure you have met all eligibility criteria so as to avoid any pilferage or mishaps in the future. A LAP contract is a long term affair, and hence proper precaution should be taken while executing it.

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