Property loans or loans against property are loans sanctioned against the value of a residential or commercial property or land. This brief guide covers the working of property loans, the various benefits associated with these loans and things one should keep in mind when availing of these loans.
What Are Property Loans? How Do They Work?
Property loan are loans sanctioned against the value of a property. This property could be residential or commercial or even land. When a borrower decides to pledge a property as collateral or security, they essentially decide to enter into a binding agreement with the lender that they will repay the loan amount along with the interest due over a pre-agreed tenor through timely EMI payments. Once they have cleared the loan amount due, their lender releases a No Objection certificate or NOC, which clearly states that the borrower has cleared all the loan EMIs.
Thereafter, the property is transferred back into the borrower’s name. However, the legal agreement also states that if the loan borrower defaults on loan repayment, the licensed money lender Singapore has every right to sell the pledged collateral and recover losses. However, in this case, the borrower must keep the amount that is owed to them and return the remaining amount from the property sale to the property owner.
Property loans are extended to only those individuals who meet the mortgage loan eligibility requirements. The qualifying criteria for property loans or loans against property revolves around several different qualifying criteria. However, the most important of these factors are CIBIL score, age, income, citizenship, etc. Before applying for a property loan, always use a mortgage loan eligibility calculator to figure out the loan amount that you qualify for and apply for this loan amount or something lower than the amount you qualify for. Doing this will allow you to get approved for a loan quickly and also negotiate beneficial loan terms and conditions.
Property Loans: Benefits
Now that we clearly understand LAP loan meaning and the workings of these loans, let us look at the benefits of property loans and why you must consider availing yourself of these loans.
1. The biggest advantage of property loans is low interest rates. Property loan interest rate tend to be low due to the presence of security or collateral. Current property loan interest rates start as low as 8.50% per annum.
2. Yet another benefit of property loans is that with these loans, borrowers enjoy the added advantage of choosing a flexible loan repayment period. Borrowers can choose to repay their loan over a period extending up to 20 years. Such a long repayment tenor translates into affordable loan EMIs, low total interest payout on the loan and low cost of borrowing funds.
3. Loans against property also give borrowers access to substantial funds. Under LAP, the LTV ratio can go as high as 80%. In other words, you can borrow up to 80% of your property’s current market value as a loan. Thus, in this case, loan borrowers can borrow substantially high loan amounts.
4. Lastly, lenders never concern themselves with how you use the loan money. Thus, you can use the funds to cover a child’s tuition fee, start a new business, buy another home, etc.
Things to Keep in Mind When Availing of a Mortgage Loan or a Loan Against Property
Loans against property are a long-term commitment and also a huge financial liability. Further, these loans require you to pledge a property you own as collateral. Therefore, it is a must that you avail yourself of a loan after carefully assessing your repayment capacity and your readiness for a property loan. Online calculators, such as the mortgage loan eligibility calculator and the mortgage loan eligibility calculator. Can make foreigner loan Singapore repayment planning easy as well as help you understand what you can afford to borrow and repay.
Loan against property borrowers must also negotiate for the lowest mortgage loan interest rates. Doing so allows loan borrowers to keep EMIs affordable and the total interest payout on the lower side. Securing a low rate of interest is easy when you have a healthy CIBIL score, a low debt-to-income ratio or FOIR. Apply for a low LTV ratio loan and pledge high-quality collateral.
Additionally, thoroughly read and understand the terms and conditions of the loan agreement, paying close. Attention to hidden charges such as processing fees, prepayment penalties, and other associated costs. This due diligence will help you avoid surprises later on and manage your finances effectively. Besides assessing your repayment capacity, you should also review the tenure of the loan, as longer tenures may reduce EMIs but increase the total interest paid.
