Did you know that the property you own is not just a place to stay or rent out? It can be leveraged for many purposes. Real estate is referred to as a strong asset because it can even be used as collateral for loans. If you ever fall short of funds, you can always take out a loan against property.
This is a smarter option as compared to selling off your asset. Whether it is for financing higher education, starting a bootstrapped business, or even paying off hefty medical expenses, a loan against FD (fixed deposit) or your property can be quite helpful. Let’s take a look at why the former option is a smarter way.
What Is a Loan Against Property?
To understand whether taking out a loan against your property is an intelligent choice, you need to know how this works. It is a type of secured loan where your property is used as collateral or security against the loan. So, in case you default on the loan, the lending institution can recover the loan amount from the market value of your property. However, this is completely safe because you can continue living in your property even when you are paying off the loan.
Why Choose Loan Against Property?
Since the property remains secured with the bank, there may be some hesitation about taking such a loan. However, if you are confident that you will be able to fully repay the loan, then there is nothing to worry about. In fact, there are far more benefits to taking out a loan against your property.
● High Loan Amount
Real estate properties are usually of very high value. The loan that you take against it is usually the same amount as the market value of your property. This means you can opt for a much higher loan amount to cover all your expenses.
● Lower Interest Rates
These are highly secured loans for the banks. Due to the lower risk taken by the bank, most may be willing to offer you a lower interest rate. This is one of the biggest reasons why you should prefer taking a loan against property.
● Flexible Tenure
A real estate property is a fixed and immovable asset. As a result, banks and non-banking financial companies (NBFCs) may be willing to offer you a higher loan tenure. So, you have the flexibility of choosing a loan tenure of anywhere between 15 and 20 years, too.
● Continued Ownership
Finally, you never need to worry about losing your property if you are confident about repaying the entire loan amount. During the time you are paying off your loan against property, you can continue living in or renting out your property.
How It Compares with Loan Against FD
When compared to a loan against FD, a loan against real estate property is much better. The former uses your fixed deposit as security in case you are unable to repay the loan. Here is a comparison between the two.
| Loan Against FD | Loan Against Property |
| It allows you to borrow an amount equal to your fixed deposit. | It allows you to borrow an amount equal to or greater than the market value of your property. |
| These loans are processed quickly. | These loans may take some time to process since they involve property valuation. |
| They usually have a slightly higher interest rate than what you receive on your fixed deposits. | They usually have a lower interest rate. |
How to Use Loan Against Property Smartly
Given the lower interest rate and possibility of a higher loan amount with these loans, you may prefer them to loans against FDs. So, here are a few smart ways in which you can unlock the value of your real estate.
- Evaluate the market value of your property before applying. This will help you estimate the amount of loan you can get.
- Compare offers from different lenders. Interest rates, processing fees, and prepayment charges may differ.
- Check your documents in advance. You’ll need property papers, ID proof, income proof, and other basic details.
- Use the funds wisely. Don’t borrow more than you need, and ensure timely repayment to avoid losing the asset.
- Finally, if your property is rented out, you can utilise the rent to pay off the loan EMIs as well.
Final Thoughts
When you need funds and don’t want to disrupt your long-term investments or sell valuable assets, a loan against property offers a practical solution. It helps you unlock the true value of your real estate while still keeping it under your name.
FAQs
1. What is a loan against property and how it works?
A loan against property is a type of secured loan. You use your real estate as collateral. You keep owning and using the property while paying back the loan.
If you can’t pay, the lender might sell your property. This is to get back what you owe.
2. Is it safe to take a loan against property?
Yes, it’s safe if you’re sure you can pay back the loan. You get to keep using your property. But, make sure to pay your EMIs on time.
3. What documents are needed for property loan?
You’ll need ID, address proof, and proof of income. Also, your property documents. Some lenders might ask for bank statements and tax returns. Make sure your documents are current and valid.
4. Is loan against property better than loan against FD?
Yes, loans against property give you more money and lower interest rates. They also let you pay back over a longer time. But, they take longer to process because of the property valuation.
5. Can I rent out my property after taking a loan?
Yes, you can keep renting out your property even after getting a loan. You will own it the whole time you’re paying back the loan. Rent can help pay for your loan payments.
